Question

Problem 13-4 Various liabilities [LO13-1, 13-2, 13-3, 13-4]

The unadjusted trial balance of the Manufacturing Equitable at December 31, 2018, the end of its fiscal year, included the following account balances. Manufacturing’s 2018 financial statements were issued on April 1, 2019.

Accounts receivable	$	97,250
Accounts payable		52,600
Bank notes payable		618,000
Mortgage note payable		1,334,000

Other information:

1. The bank notes, issued August 1, 2018, are due on July 31, 2019, and pay interest at a rate of 15%, payable at maturity.
2. The mortgage note is due on March 1, 2019. Interest at 14% has been paid up to December 31 (assume 14% is a realistic rate). Manufacturing intended at December 31, 2018, to refinance the note on its due date with a new 10-year mortgage note. In fact, on March 1, Manufacturing paid $352,000 in cash on the principal balance and refinanced the remaining $982,000.
3. Included in the accounts receivable balance at December 31, 2018, were two subsidiary accounts that had been overpaid and had credit balances totaling $18,400. The accounts were of two major customers who were expected to order more merchandise from Manufacturing and apply the overpayments to those future purchases.
4. On November 1, 2018, Manufacturing rented a portion of its factory to a tenant for $29,400 per year, payable in advance. The payment for the 12 months ended October 31, 2019, was received as required and was credited to rent revenue.

Required:
1. Prepare any necessary adjusting journal entries at December 31, 2018, pertaining to each item of other information (a–d).
2. Prepare the current and long-term liability sections of the December 31, 2018, balance sheet.
  

Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare the current and long-term liability sections of the December 31, 2018, balance sheet. Balance Sheet (partial) At December 31, 2018 Current liabilities 52,600 618,000 Current portion of long-term352,000 24,500 Advances from customers 18,400 24,500 Accounts payable Bank notes payable debt Interest payable Deferred revenue Total current liabilities $1,090,000 Long-term liabilities Mortgage note payable $982,000 KRequired 1 Required 2

Answer 1

Answer:1) Journal Entries

Date	Account Title	Debit($)	Credit($)
A	Interest expense[(15% x 6,18,000) x 5/12]	38,625
	Interest payable		38,625
B	No adjusting entry is required
C	Accounts receivable	18400
	Advances from customers		18400
D	Rent revenue (10/12 x 29,400)	24500
	Unearned rent revenue		24500

2.Prepare the current and long-term liability sections of the December 31, 2018 balance sheet.
Current liabilities:
Accounts payable	52,600
Bank Notes payable	6,18,000
Current portion of long-term debt	3,52,000
Interest payable [(15% x 6,18,000) x 5/12]	38,625
Advances from customers	18,400
Deferred revenue	24,500
Total current liabilities	11,04,125
Long-term liabilities:
Mortgage note payable	9,82,000