Question

QUESTION 42

1. Below is a list of items (all with normal balances) from the Bearkat Company adjusted trial balance as of 12/31/19. The accounts are presented in random order. Additional information is also provided below.

   Unearned Service Revenue	80,000		Salaries Expense	60,000
   Rent Revenue	115,000		Accounts Payable	33,000
   Accounts Receivable	60,000		Cost of Goods Sold	39,500
   Notes Payable	100,000		Land	260,000
   Accumulated Depreciation - Building	22,000		Building	92,000
   Sales	400,000		Retained Earnings	?
   Bonds Payable	90,000		Prepaid Advertising	8,000
   Common Stock	200,000		Allowance for Doubtful Accounts	12,000
   Depreciation Expense	30,000		Cash	175,000

   
   Additional Information:

   • The Cash balance of $175,000 includes $50,000 of restricted funds set aside to retire bonds that mature in 2022.
   • On 12/31/19, Bearkat Company purchased a plot of land for $260,000, shown in the adjusted trial balance above. The land is being held for investment.
   • The Notes Payable account consists of a $100,000 note due in four annual installments of $25,000 each. The first installment is due on 6/30/20, with remaining installments due on 6/30 of 2021-2023.
   • 200,000 shares of $1 par common stock are authorized and outstanding.

   What is the balance of total current liabilities?

   	A.	$138,000.
   	B.	$228,000.
   	C.	$113,000.
   	D.	$58,000.

Answer 1

Current liability means short term obligation arising from past events and are expected to settle by the company within one year or within operating cycle.

Unearned revenue service - Revenue already collected but services has not been provided.However, the company has obligation to perform the services ,and hence it is considered as current liability in balance sheet

Notes Payable- Notes Payable due to be settled in 4 equal annual installments. However, first installment is due on 6/30/20 for an amount of $25,000 which will be considered as current liability.

Accounts Payable- Means amount payable by company to its creditors for the supply of goods or services received by company. Generally, account payable will be considered as current liabilty.

Calculation of Current Liabilities

Unearned Revenue service = 80,000$

Notes Payable =25,000$

Accounts Payable =33,000$

Total Current Liabilities 1,38,000 $

Therefore balance of total current liabilties is 1,38,000$ (Option A).

Notes

1.Bonds Payable- Bonds generally mature for more than one year. So, it is considered as long term liability.

2. Allowance for doubtful accounts- It is an estimate by the company that certain portion of accounts receivable will not be realised by the company. Generally allowance for doubtful debts will be deducted from the account receivable in the balance sheet.