Question

At December 31, 2017, Eastern Manufacturing Corporation had the following selected transactions related to liabilities of the company. The 2017 financial statements are issued March 15, 2018. The company has the following transactions related to liabilities:

1. $12 million borrowed on October 31, 2017 from Second Commercial Bank under a line of credit and issued a 5-month promissory note. Management planned to issued 10-year bonds in February 2018 to repay the note.

2. Received $2,600 of refundable deposits in December for reusable containers used to transport and store chemical-based products.

3. For the September-December period, sales totaled $4,100,000. The state sales tax rate is 3% on all sales and are due thirty days after the end of the quarter.

4. On March 15, 2018, the IRS began the process of auditing Eastern’s tax returns for 2011-2013, but has not proposed a deficiency assessment. If the assessment is made an unfavorable settlement of up to $6 million is possible.

5. July 1, 2017, Eastern borrowed $1 million cash and issued a 1-year promissory note with 10% interest payable at maturity.

Required:

Prepare the liability section of the balance sheet at December 31, 2017. If you exclude any item from liabilities provide your reasoning for the exclusion.