Question

The unadjusted trial balance of the Manufacturing Equitable at December 31, 2021, the end of its fiscal year, included the following account balances. Manufacturing’s 2021 financial statements were issued on April 1, 2022. Accounts receivable $ 107,000 Accounts payable 36,800 15% notes, payable to bank 630,000 Mortgage note payable 1,460,000 Other information: The bank notes, issued August 1, 2021, are due on July 31, 2022, and pay interest at a rate of 15%, payable at maturity. The mortgage note is due on March 1, 2022. Interest at 14% has been paid up to December 31 (assume 14% is a realistic rate). Manufacturing intended at December 31, 2021, to refinance the note on its due date with a new 10-year mortgage note. In fact, on March 1, Manufacturing paid $477,500 in cash on the principal balance and refinanced the remaining $982,500. Included in the accounts receivable balance at December 31, 2021, were two subsidiary accounts that had been overpaid and had credit balances totaling $18,850. The accounts were of two major customers who were expected to order more merchandise from Manufacturing and apply the overpayments to those future purchases. On November 1, 2021, Manufacturing rented a portion of its factory to a tenant for $36,600 per year, payable in advance. The payment for the 12 months ended October 31, 2022, was received as required and was credited to rent revenue. Required: 1. Prepare any necessary adjusting journal entries at December 31, 2021, pertaining to each item of other information (a–d). 2. Prepare the current and long-term liability sections of the December 31, 2021, balance sheet.

Answer 1

General Journal	Debit	Credit
a
Interest expense [(15% x 630,000) x 5/12]	39,375
Interest payable		39,375
b
No entry
c
Accounts receivable	18,850
Advance from customers		18,850
d
Rent revenue (10/12 x 36,600)	30,500
Unearned rent revenue		30,500
2
Current liabilities:
Accounts payable	36,800
Notes payable	630,000
Current portion of long-term debt	477,500
Interest payable	39,375
Advances from customers	18,850
Unearned rent revenue	30,500
Total current liabilities	1,233,025
long-term Liabilities
Mortgage note payable	982,500