Question

The unadjusted trail balance of Beirut Company at December 31, 2018, included the following account balances. Beirut’s 2018 finance statements were issued on March 31, 2019.

Accounts receivable	$   114,250
Accounts payable	53,600
Notes payable	670,000
Mortgage payable	1,270,000

Other information:

a. The notes payable were issued August 1, 2018, and are due on July 31, 2019. The interest rate is 12% payable at maturity.

b. The mortgage payable is due on March 1, 2019. Interest at 11% has been paid up to December 31. Beirut intended to refinance the mortgage on its due date with a new 10-year mortgage. In fact, on March 1, Beirut paid $263,000 in cash on the principal balance and refinanced the remaining $1,007,000.

c. Included in the accounts receivable at December 31, 2018 were two accounts that had been overpaid and had credit balances total $19,650. The overpayments will be applied to future purchases. Hint: these need be reclassified as customer advances.

d. On November 1, 2018, Beirut rented a portion of its factory to a tenant for $32,400 that was received in advance. The amount was incorrectly credited to Rent Revenue.

Required:

1) Prepare any necessary adjusting/correcting entries related to the above items.

2) Prepare the current and long-term liability sections of the December 31, 2018 balance sheet.

Answer 1

No	Transaction	General Journal	Debit	Credit
1	a	Interest expense	33,500		670000*0.12*(5/12)
		Interest payable		33,500
2	b	No journal entry required
3	c	Accounts receivable	19,650
		Advance from Customers		19,650
4	d	Rent revenue	27,000		(32400/12)*10
		Deferred revenue		27,000
		Balance Sheet (partial)
		At December 31, 2018
		Current liabilities:
		Accounts payable	$53,600
		Current portion of long-term debt	263,000
		Accrued interest payable	33,500
		Advances from customers	19,650
		Deferred revenue	27,000
		Bank notes payable	670,000
		Total current liabilities	1066750
		Long-term liabilities:
		Mortgage note payable	$1,007,000