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	$	90,000
Accounts payable		46,600
15% notes, payable to bank		654,000
Mortgage note payable		1,253,000

   
Other information:

1. The bank notes, issued August 1, 2021, are due on July 31, 2022, and pay interest at a rate of 15%, payable at maturity.
2. 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 $252,000 in cash on the principal balance and refinanced the remaining $1,001,000.
3. Included in the accounts receivable balance at December 31, 2021, were two subsidiary accounts that had been overpaid and had credit balances totaling $15,350. 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, 2021, Manufacturing rented a portion of its factory to a tenant for $31,800 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

Answer :

(1).

Journal Entries

Account Title and Explanation	Debit ($)	Credit ($)
Interest expense	40,875	-
Accrured interest payable (654000*15%*5/12)	-	40,875
No Journal Entry is required	-	-
Account Receivable	15,350	-
Deferred Revenue	-	15,350
Rent Revenue	26,500	-
Deferred rent revenue (31,800*10/12)	-	26,500

(2).

Balance sheet (Partial) As on December 31.2022

Liabilities and shareholder's equity	-
Current Liabilities	-
Account payable	$46,600
Bank notes payable	$654,000
Current portion of long term debt	$252,000
Interest payable	$40,875
Advances from customers	$15,350
Deferred rent revenue	$26,500
Total current liabilities	$1,035,325
Long term Liabilities	-
Mortgage notes payable	$1,001,000
Total long term liability	$1,001,000

Kindly Up-vote Thank You !!!!