Q32PGA_2 - Horngren'S Financial And Managerial Accounting

Question

Journalizing liability transactions and reporting them on the balance

sheet

The following transactions of Johnson Pharmacies occurred during 2018 and 2019:

2018

Mar. 1 Borrowed \(450,000 from Coconut Creek Bank. The 15-year, 5% note requires

payments due annually, on March 1. Each payment consists of \)30,000 principal

plus one year’s interest.

Dec. 1 Mortgaged the warehouse for \(250,000 cash with Saputo Bank. The mortgage

requires monthly payments of \)8,000. The interest rate on the note is 12% and

accrues monthly. The first payment is due on January 1, 2019.

31 Recorded interest accrued on the Saputo Bank note.

31 Recorded interest accrued on the Coconut Creek Bank note.

2019

Jan. 1 Paid Saputo Bank monthly mortgage payment.

Feb. 1 Paid Saputo Bank monthly mortgage payment.

Mar. 1 Paid Saputo Bank monthly mortgage payment.

1 Paid first installment on note due to Coconut Creek Bank.

Requirements

1. Journalize the transactions in the Johnson Pharmacies general journal. Round to

the nearest dollar. Explanations are not required.

2. Prepare the liabilities section of the balance sheet for Johnson Pharmacies on

March 1, 2019 after all the journal entries are recorded.

Step-by-Step Solution

Answer

The total of the liabilities side of the balance sheet is $653,334.

Step 1: Definition of the interest payable

The interest payable is the amount of which is payable at the end of the company to other parities. It is shown under the liabilities section of balance sheet.

Step 2: Journal entries

Johnson Pharmacies
Balance Sheet
On March 1, 2019
Current Liabilities:
Current Portion of Notes Payable	$30,000
Current Portion of Mortgage Payable	$71,867
Total Current Liabilities		$101,867
Long-Term liabilities:
Notes Payable	$390,000
Mortgage Payable	$161,467
Total Long-term Liabilities		$551,467
Total Liabilities		$653,334