Classification of Liabilities
The accountant for Sierra Corp. prepared the following schedule of liabilities as of December 31, 2008.
|
Accounts payable |
$ 65,000 |
|
Notes payable—trade |
19,000 |
|
Notes payable—bank |
80,000 |
|
Wages and salaries payable |
1,500 |
|
Interest payable |
14,300 |
|
Mortgage note payable—10% |
60,000 |
|
Mortgage note payable—12% |
150,000 |
|
Bonds payable |
200000 |
|
Total |
$589,800 |
The following additional information pertains to these liabilities.
(a) All trade notes payable are due within six months of the balance sheet date.
(b) Bank notes payable include two separate notes payable to First Interstate Bank.
(1) A $30,000, 8% note issued March 1, 2006, payable on demand. Interest is payable every six months.
(2) A 1 year, $50,000,111⁄2% note issued January 2, 2008.On December 30,2008, Sierra negotiated a written agreement with First Interstate Bank to replace the note with a 2 year, $50,000, 10% note to be issued January 2, 2009.
(c) The 10% mortgage note was issued October 1, 2005, with a term of 10 years. Terms of the note give the holder the right to demand immediate payment if the company fails to make a monthly interest payment within 10 days of the date the payment is due. As of December 31, 2008, Sierra is three months behind in paying its required interest payment.
(d) The 12% mortgage note was issued May 1, 2002, with a term of 20 years. The current principal amount due is $150,000. Principal and interest are payable annually on April 30. A payment of $22,000 is due April 30, 2009. The payment includes interest of $18,000.
(e) The bonds payable are 10 year, 8% bonds, issued June 30, 1999.
Instructions: Prepare the Liabilities section of the December 31, 2008, classified balance sheet for Sierra Corp. Include notes as appropriate. Assume the interest payable accrual has been computed correctly.