Question

The following transactions apply to Ozark Sales for 2018: The business was started when the company received $49,500 from the issue of common stock. Purchased equipment inventory of $177,000 on account. Sold equipment for $198,500 cash (not including sales tax). Sales tax of 8 percent is collected when the merchandise is sold. The merchandise had a cost of $123,500. Provided a six-month warranty on the equipment sold. Based on industry estimates, the warranty claims would amount to 3 percent of sales. Paid the sales tax to the state agency on $148,500 of the sales. On September 1, 2018, borrowed $20,500 from the local bank. The note had a 5 percent interest rate and matured on March 1, 2019. Paid $5,400 for warranty repairs during the year. Paid operating expenses of $53,000 for the year. Paid $125,100 of accounts payable. Recorded accrued interest on the note issued in transaction no. 6. What is the total amount of current liabilities at December 31, 2018.

Answer 1

Answer: a. Dr Interest expense  $341.67

                   Cr    Accrued Interest Liability   $341.67.

b. Total Amount of Current Liabilities = $72741.67

Explanation:

Accrued Interest on notes Payable

The Note was issued on 1 September 2018, note Payable is $20500 interest interest will be incurred from the Month of September to February because the Note will be settled on 1 March 2019, How ever The year ended on the 31st of December (current financial period) which means Ozark Sales Company incurred interest for 4 months in the current year (1 September to 31 December 2018).

Interest Calculation

Note Payable Amount = $20500

Interest rate (R) = 5% per annum

Period (Number of months) = 4 months (September to December 2018)

Accrued Interest expense = $20500 x 5/100 x 4/12

Accrued Interest expense = $341.6666667 = $341.67

Journal Entry

Dr Interest expense  $341.67

Cr         Accrued Interest Liability   $341.67.

Current Liabilities

Ozark Sales current liabilities include Purchased equipment inventory, Accrued Interest expense incurred on the Notes Payable and the Notes Payable amount. Ozark Sales Made a Payment of $125100, this payment was made to settle some of the total current liabilities.

The total Current Liabilities (The Balance) on 31 December 2018 will include all transactions mentioned about and the payment of $125100 will be subtracted. The Balance will the amount that will be reflected in the Balance sheet for Current Assets

Purchased Equipment inventory = $177 000

Notes Payable = $20500

Accrued Interest Liability = $ 341.67

Accounts Payable Payment  = $125100

Total Amount of Current Liabilities = $177 000 + $20500 + $341.67 - $125100

Total Amount of Current Liabilities = $72741.67