MMP Limited (a privately held corporation) is a retail operation that sells pet supplies. The company owns the building from which it operates the business and rents office space as well. The share capital of the corporation includes $5 preferred shares that are cumulative and nonparticipating, 2,000 shares issued and outstanding; and 10,000 common shares issued and outstanding. The following selected transactions of MMP Limited were completed during the fiscal year ended December 31, 2018: June 1 Purchased a truck by paying $3,000 cash and signing a $30,000, one year, noninterest-bearing note. The market rate of interest on similar types of loans was 12%. Dec 1 Received $4,500 for three months rent in advance for rental of office space. . Dec 1 On December 1, 2018, MMP Limited began a promotional campaign in which they included one coupon in each bag of dog food it sold. In return for 3 coupons, customers receive a dog toy. The company has estimated that 60% of the coupons will be redeemed. 25,000 dog toys were purchased at a cost of $1.20 each and the bookkeeper debited Miscellaneous Expense for the total cost and did not record anything else with respect to this premium offer. (Ignore the HST paid on the purchase of the dog toys I forgot to include it in the solution!) During the month of December, 10,000 bags of dog food were sold @ $40 per bag PLUS HST and 4,500 coupons were redeemed (refer to the sales transaction below). The company has opted to use the expense approach. Dec 15 The shareholders of MMP Limited declared dividends payable to the shareholders of record date December 20, in the amount of $10,000. Dividends in arrears on the preferred shares as at December 31, 2017 were $6,000. The dividends are to be paid on January 10, 2019. Dec 31 Employees are paid monthly. The total payroll (gross wages) for the month of December was $460,000. Income taxes withheld were $110,000. The employment insurance premiums are 2.25% and the CPP contributions are 4.3%. Apply both percentages to gross earnings. The employees were paid on December 31, 2018. Dec 31 Sales of dog food for the month of December (excluding sales taxes) totalled $400,000. Applicable sales taxes are collected according to the provincial HST requirement (13%). (This amount is referred to on December 1, 2018) Dec 31 Income tax installments paid during the year were $24,000. The actual amount of income taxes for the current year is $26,000. ACCT202 Chapter 13 Page 2 of 2 Test #2 Practice Questions Dec 31 During the year, sold merchandise for $50,000 cash that carried a two-year warranty for parts and labour, the revenue from which cannot be separately identified. A reasonable estimate of the cost of the warranty is 1.5% of sales revenue. By December 31, $250 of actual warranty costs had been incurred, $100 for parts and $150 for labour. The company uses its own parts inventory but pays an independent contractor to perform the repairs. The sales have already been recorded and the labour costs incurred were recorded as a debit to Warranty Expense for $150 and a credit to Cash for $150. Nothing else has been recorded with respect to these warranties. (This bookkeeper really does need some training!) Dec 31 The annual audit for the current year is estimated to be completed by February of the following year. The audit fee for the previous year was $5,500. Dec 31 On December 15, MMP Limited co-signed and guaranteed payment of a $25,000, 15%, one-year note payable to the Bank of Montreal, by one of the companys suppliers. The bank required a guarantor, however, they believe that default by the debtor is only reasonably possible. The company is considered a Private Entity. REQUIRED: (1) Prepare all journal entries AND year-end adjusting entries with respect to the above information. (2) Prepare any necessary notes to the financial statements. (3) Prepare the Current Liabilities section of the Balance Sheet for MMP Limited as at December 31, 2018.