The unadjusted trial balance of the Manufacturing Equitable at December 31, 2016
ID: 2469805 • Letter: T
Question
The unadjusted trial balance of the Manufacturing Equitable at December 31, 2016, the end of its fiscal year, included the following account balances. Manufacturing’s 2016 financial statements were issued on April 1, 2017.
The bank notes, issued August 1, 2016, are due on July 31, 2017, and pay interest at a rate of 10%, payable at maturity.
The mortgage note is due on March 1, 2017. Interest at 9% has been paid up to December 31 (assume 9% is a realistic rate). Manufacturing intended at December 31, 2016, to refinance the note on its due date with a new 10-year mortgage note. In fact, on March 1, Manufacturing paid $430,000 in cash on the principal balance and refinanced the remaining $960,000.
Included in the accounts receivable balance at December 31, 2016, were two subsidiary accounts that had been overpaid and had credit balances totaling $20,750. 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, 2016, Manufacturing rented a portion of its factory to a tenant for $34,500 per year, payable in advance. The payment for the 12 months ended October 31, 2017, was received as required and was credited to rent revenue.
Prepare any necessary adjusting journal entries at December 31, 2016, pertaining to each item of other information (a–d). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Prepare the current and long-term liability sections of the December 31, 2016, balance sheet.
Accounts receivable $ 112,500 Accounts payable 42,600 Bank notes payable 612,000 Mortgage note payable 1,390,000Explanation / Answer
Date Accounts Titlle Dr Cr a Interest Expense (612000*10%*5/12) $25833 Interest payable 25833 (Being interest accured for 5 months) b No Journal Entry Required No entry is required as interest is paid uptp 31 december and Manufacturing has just intended not refinancied c Accounts Receivable 20750 Unearned Revenue 20750 (Being amount already received from accounts receivable but adjusted for future service) d Rent Revenue (34500*10/12) 28750 Unearned Rent 28750 (Being rent unearned for 10 months and earned for 2 months only Nov and dec sp rent revenue is debited for 10 month revenue as it was credited earlier for 12 months)
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