MMP Limited deals in computer sales and service and has the following share capital structure: $2, Cumulative preferred shares, 3,000 shares issued and outstanding; common shares, 10,000 shares issued and outstanding. MMP Limited is a private corporation and is HST registered.

The following selected transactions of MMP Limited were completed during the fiscal year ended December 31, 2019 and the month of March, 2020:

2019

Mar. 1 Borrowed cash (you need to calculate the amount of cash borrowed!) by signing a $20,000, one year, non-interest bearing note. The market rate of interest on similar types of debt was 8% at this time.

Dec. 1 MMP Limited decided to rent out spare office space at $2,000 (not HST taxable) per month and collected rent for the month of December plus the last months rent deposit. MMP Limited has agreed that interest will be accrued to the tenant on the last months rent deposit at a rate of 6% per annum.

Dec. 1 MMP Limited decided to run a special promotion wherein one coupon was given to customers with the purchase of the MMP Penguin computer. Upon redemption of the coupon plus $10.00, the consumer would receive a printer cartridge. It is estimated that 80% of the coupons will be presented for redemption. MMP Limited purchased 500 cartridges on credit from a supplier at a cost of $11.25 per cartridge plus HST. As at December 31, none of the coupons had been redeemed. The company has opted to use the expense approach.

As at December 31, 400 computers had been sold at $2,000 each plus HST which includes a 3-year warranty that requires the company to perform periodic services and to replace defective parts. 15% of the sales price is considered to be allocated to the sale of the warranty. The company has estimated the total 3-year warranty costs at $80 for parts and $120 for labour per computer.

In 2019, MMP Limited incurred actual warranty costs relative to 2019 computer sales of $8,000 for parts and $12,000 for labour.

Dec. 31 MMP Limited pays its employees on a monthly basis on the last day of every month. The gross salaries earned by the employees for the month of December were $80,000. CPP is withheld at a rate of 4.95% of gross earnings, EI is withheld at a rate of 1.98% of gross earnings and income taxes are withheld at a rate of 20% of gross earnings.

Dividends in arrears on preferred shares were $3,000 as at December 31, 2018 and no dividends were declared in 2019.

On December 15 of the current year, MMP Limited filed a lawsuit against one of its customers for non-payment. The legal counsel for MMP Limited has advised that the company will probably be successful with this lawsuit and receive payment of $15,000. 2020

Mar 1 Paid the note payable that was issued on March 1, 2019.

Required:

(1) Prepare journal entries to record all of the above transactions, including all necessary year-end adjusting entries for the year ended December 31, 2019. Please show relevant calculations below the applicable journal entry!

(2) Prepare any necessary notes to the financial statements for the year-ended December 31, 2019.