Current liabilities: entries and disclosure. A review of selected financial activities of Visconti’s during 20XX disclosed the following:
Borrowed $20,000 from the First City Bank by signing a 3- month, 15% note payable. Interest and principal are due at maturity.
Established a warranty liability for the XY-80, a new product. Sales are expected to total 1,000 units during the month. Past experience with similar products indicates that 2% of the units will require repair, with warranty costs averaging $27 per unit.
Purchased $16,000 of merchandise on account from Oregon Company, terms 2/10, n/30.
Borrowed $5,000 from First City Bank; signed a note payable due in 60 days.
Repaired six XY-80s during the month at a total cost of $162.
Accrued 3 days of salaries at a total cost of $1,400.
a. Prepare journal entries to record the transactions.
b. Prepare adjusting entries on October 31 to record accrued interest.
c. Prepare the Current Liability section of Red Bank’s balance sheet as of October 31. Assume that the Accounts Payable account totals $203,600 on this date.