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I. (30 points) You are an accounting assistant for Castillo Corporation. The controller has asked you to prepare the liability section of the Balance Sheet as of December 31, 2023. The following is a list of the liabilities on that date.

a. Accounts payable, $58,000, due 30 days from date of purchase.

b. Cash dividends payable on common stock, $50,000, payable on January 10, 2024.

c. Income taxes payable, $4500, due April 15, 2024.

d. Interest payable, $23,000, due on various dates in 2024.

e. Note payable to Hamsen Bank, $300,000, due June 30, 2025.

f. Note payable to Piper Bank, $200,000, due January 15, 2024.

g. Note payable to Stockton Bank, $140,000, due January 31, 2024.

h. Rent collected in advance, $5,000. Castillo rents a spare office on its premises for $5,000 a month. Rent for January 2024 was collected on December 28, 2023.

i. Serial bonds payable, $1,000,000, of which $250,000mature each year on September 30 until paid in full on September 30, 2027.

j. Wages payable, $15,000, payable on January 5, 2024

Selected transaction occurring in January, 2024, prior to the issuance of the financial statements on February 6, 2024:

During January, all accounts payable were paid.

January 5. Wages payable were paid.

January 10. The cash dividends on common stock were paid.

January 15. The $200,000 note payable to Piper Bank was paid.

January 20. The corporation entered into a financing agreement with Piper Bank that allows

the company to borrow up to $250,000 at any time during 2024. The amount

borrowed is due in three years. Castillo immediately borrowed $200,000 to

replace the cash used in paying its note payable on January 15.

January 31. 3,000 shares of common stock were issued for $200,000. $140,000 of the

proceeds were used to pay the note payable to Stockton Bank.

Requirements:

Prepare the liability section of the balance sheet on December 31, 2023, showing proper classification as current or long-term liabilities. Required disclosure in the notes should be included.

My work

I.

Current Liabilities (as of December 31, 2023)

1. Accounts Payable: $58,000 (due within 30 days)

2. Cash Dividends Payable : $50,000 (payable on January 10, 2024)

3. Income Taxes Payable : $4,500 (due April 15, 2024)

4. Interest Payable : $23,000 (due within 2024)

5. Note Payable to Piper Bank : $200,000 (due January 15, 2024)

6. Note Payable to Stockton Bank: $140,000 (due January 31, 2024)

7. Rent Collected in Advance: $5,000 (for January 2024)

8. Serial Bonds Payable: $250,000 (portion maturing within one year)

9. Wages Payable: $15,000 (payable on January 5, 2024)

Notes:

All accounts payable were cleared in January 2024.

The note payable to Piper Bank was paid and replaced by a new financing agreement on January 20, 2024. The new loan of $200,000 due in three years is a long-term liability as of December 31, 2023.

The note payable to Stockton Bank was paid using proceeds from the issuance of common stock in January 2024.

The liability section of Castillo Corporation's balance sheet as of December 31, 2023, categorizes obligations into current and long-term liabilities. Current liabilities, due within a year, include accounts payable, dividends, taxes, interest, notes payable, rent in advance, and wages. Long-term liabilities, due after a year, consist of a note payable and serial bonds. Post-year-end activities, like paying off and replacing the Piper Bank note and paying the Stockton Bank note with stock issuance proceeds, affect the long-term liabilities but don't change the December 31, 2023, statement.

Final Liability Section of the Balance Sheet (December 31, 2023)

Current Liabilities:

Accounts Payable: $58,000

Cash Dividends Payable: $50,000

Income Taxes Payable: $4,500

Interest Payable: $23,000

Note Payable to Piper Bank: $200,000

Note Payable to Stockton Bank: $140,000

Rent Collected in Advance: $5,000

Serial Bonds Payable (Current Portion): $250,000

Wages Payable: $15,000

Total Current Liabilities:$745,500

Long-Term Liabilities:

Note Payable to Hamsen Bank: $300,000

Serial Bonds Payable (Non-current Portion): $750,000

New Loan from Piper Bank: $200,000

Total Long-Term Liabilities:$1,250,000

Notes to Financial Statements

The nature of the new financing agreement with Piper Bank should be disclosed, including terms and interest rates.

Details regarding the serial bonds' maturity schedule and interest should be provided.

The treatment of the proceeds from the issuance of common stock and its impact on liabilities should be noted.

The final liability section of Castillo Corporation's balance sheet as of December 31, 2023, is divided into current liabilities totaling $745,500 and long-term liabilities amounting to $1,250,000. The balance sheet reflects obligations such as accounts payable, notes payable, and serial bonds. Post-year-end events, including a new loan from Piper Bank and the issuance of common stock, have been noted for their impact on the company's financial position, necessitating disclosure in the financial statement notes.

The final liability section of Castillo Corporation's balance sheet as of December 31, 2023, shows total current liabilities of $745,500, including accounts payable, dividends, taxes, interest, notes payable, rent in advance, bonds payable, and wages. The long-term liabilities total $1,250,000, comprising a note payable to Hamsen Bank, the non-current portion of serial bonds payable, and a new loan from Piper Bank.

instructor feedback -

Two items need further attention.

Because the Note Payable to Stockton Bank was paid with the proceeds of the stock sale, it is classified as long-term even though it is due within a year. If current debt is liquidated with non-current assets or refinanced on a long-term basis, it is categorized as long-term.

You correctly classified the Note Payable to Piper Bank as current, because it was paid with cash the company categorized as a current asset. The refinancing happened five days later, so is a separate transaction. Disclosure would be made in the notes (as you did in your answer).

The new loan from Piper Bank should not be on the December 31 Balance Sheet because it did not exist until the end of January.