Answer:
1. A.
Dec 31
DR Interest Expense ...............................................$25,000
CR Interest Payable ..................................................................$25,000
(To record interest payable on bank notes for the year)
Working
= 10% * 600,000
= $60,000 per year
August to December 5 months
= 60,000/ 12 months * 5
= $25,000
B. No entry required. Payment of $250,000 shall be considered short term liability as it is to be paid in less than a year. The $950,000 shall be a long term liability.
C.
Dec 31,
DR Accounts Receivable...............................................$18,000
CR Advance from Customers.......................................................$18,000
D.
Dec 31,
DR Rent Revenue ............................................................$25,000
CR Rent received in advance.........................................................$25,000
Working
Rent is $30,000 from the tenant starting November 1 which means rent needs to be apportioned to 2 months in 2011.
= 30,000/12 moths * 2
= $5,000
Rent to be recorded as received in advance;
= 30,000 - 5,000
= $25,000
2.
..................................Liabilities as at December 31, 2011............................
Current Liabilities
Accounts Payable ......................................................$35,000
Current Portion of debt .............................................$250,000
Advance from Customers.........................................$18,000
Accrued Interest payable..........................................$25,000
Unearned rent revenue.............................................$25,000
Bank notes payable....................................................<u>$600,000</u>
Total................................................................................$953,000
Long Term Liabilities
Mortgage Note Payable ............................................$950,000
Total .................................................................................$950,000
