Monmouth Limited has a December 31 year-end. On December 1, 2020, Monmouth had the following current liabilities listed on its books:
 

Bank overdraft	$18,750
Accounts payable	$122,500
CPP, EI and income tax payable	$6,620
Unearned revenues	$12,000

During December 2020 Monmouth engaged in the following transactions:
 

Dec 1	Bought $20,000 of inventory on credit, terms of 30 days
Dec 2	Negotiated a $40,000 line of credit with their bank and drew down $18,750 to replace the bank overdraft. Interest will be charged at 4%, based on the average balance outstanding during the month, and paid on the last day of the month.
Dec 7	Sold goods worth $30,000 on which they had previously received a $12,000 deposit. The balance was due in 30 days.
Dec 8	Paid $63,000 owing to a supplier
Dec 12	Paid amounts due to federal government for the payroll amounts outstanding from November 30.
Dec 19	Sold $66,000 of goods half for cash, half on credit.
Dec 20	Made a $10,000 payment on the line of credit
Dec 21	Received $5,000 from a client for work that will be performed in January 2022.
Dec 22	Received a lawyer's letter stating that a customer is suing the company for failure to clear the snow away from the front of the business premises. The customer fell and was injured as a result. Monmouth's lawyer says that it is likely that the company will be required to pay but she is unable to reasonably determine the amount of the loss.
Dec 28	Paid the monthly payroll amounts to employees. The gross payroll was $16,200. Amounts withheld from the employees' cheques were as follows: Canada pension plan premiums (CPP) $1,200 Employment insurance premiums (EI) $1,850 Income tax $2,800 At the same time, the company also recorded their liability for amounts due to the government for CPP and EI. Assume the employer must match the employees' contribution for both EI and CPP.

Required:

1. Prepare all the journal entries required as a result of the above transactions.
2. Prepare the current liabilities section of the balance sheet at December 31, 2020.

Answer rating: 100% (QA)

Step 1 Current Liabil... View the full answer