Seattle Chocolates for the year ended December 31, 2002:
The following are selected items from the accounting records of Seattle Chocolates for the year ended December 31, 2002:
Note payable to northwest Bank $500,000
Income taxes payable 40,000
Accrued expenses and payroll taxes 60,000
Mortgage note payable 750,000
Accrued interest on mortgage note payable 5,000
Trade accounts payable 250,000
Unearned revenue 15,000
Potential liability in pending lawsuit 100,000
Other information
1. The note payable to Northwest Bank is due in 60 days. Arrangement have been made to renew this note for an additional 12 months
2. The mortgage requires payments of $6,000 per month. An amortization table shows that its balance will be paid down to $739,000 by December 31, 2003.
3. Accrued interest on the mortgage note payable is paid monthly. The next payment is due near the end of the first week in January 2003.
4. Seattle Chocolates has been sued for $100,000 in a contract dispute. It is not possible at this time, however, to make a reasonable estimate of the possible loss, if any, that the company may have sustained.
Instructions
a. Using the information provided prepare the current and long-term liability sections of the company's balance sheet dated December 31, 2002 (Within each classification, items may be listed in any order)
b. Explain briefly how the information in each of the four numbered paragraphs above influenced your presentation of the company's liabilities.
SSC
a. To prepare the current and long-term liability sections of Seattle Chocolates' balance sheet as of December 31, 2002, we need to categorize the provided information into current liabilities and long-term liabilities.
Current Liabilities:
- Note payable to Northwest Bank: $500,000 (due in 60 days, with an arrangement for renewal of an additional 12 months)
- Income taxes payable: $40,000
- Accrued expenses and payroll taxes: $60,000
- Accrued interest on mortgage note payable: $5,000 (next payment due near the end of the first week of January 2003)
- Trade accounts payable: $250,000
- Unearned revenue: $15,000
- Potential liability in pending lawsuit: $100,000
Long-Term Liabilities:
- Mortgage note payable: $750,000 (with monthly payments of $6,000 and an outstanding balance of $739,000 by December 31, 2003)
b. The information in each of the four numbered paragraphs influenced the presentation of liabilities as follows:
1. The note payable to Northwest Bank, originally due in 60 days, has been arranged for renewal for an additional 12 months. Therefore, it is classified as a current liability, indicating that it will be due within the upcoming year.
2. The mortgage note payable has monthly payments of $6,000 and an outstanding balance that will be paid down to $739,000 by December 31, 2003. Since the balance will not be fully paid within the upcoming year, it is categorized as a long-term liability.
3. The accrued interest on the mortgage note payable, which is paid monthly, requires the next payment to be made near the end of the first week in January 2003. This installment of the accrued interest is a current liability since it will be due within the upcoming year.
4. Seattle Chocolates is facing a potential liability of $100,000 in a pending lawsuit. Since it is not possible to estimate the loss at this time, this amount is disclosed as a potential liability separate from the current liabilities section of the balance sheet. It is important to note that this amount may or may not ultimately become a liability depending on the outcome of the lawsuit.