Server Planet operates a web hosting company. Examine the following items and pr

Question

Server Planet operates a web hosting company. Examine the following items and prepare the current liability section of the company's December 31, 20X7, balance sheet.
The beginning of year accounts payable was $100,000. Purchases on trade accounts during the year were $650,000, and payments on account were $610,000.
The company incurs substantial costs for electricity to run its servers and air conditioning systems. As of December 31, 20X7, it is estimated that $55,000 of electricity has been used, although the monthly billing for December has not yet been received.
Server Planet sells web hosting plans for as low as $25 per month. However, it requires its customers to prepay in 6-month increments. As of the end of the year, $375,000 had been collected for 20X8 web hosting plans.
Web hosting services are subject to sales taxes, and Server Planet collected $65,000 during the year. All of these amounts have been remitted to taxing authorities, with the exception of $5,000 that is due to be paid in January, 20X8.
The company has total bank loans of $1,500,000. This debt bears interest at 6%, payable monthly. As of December 31, 20X7, all interest had been paid, with the exception of accrued interest for the last half of December.
The company's bank loans ($1,500,000) are all due on June 30, 20X8. However, Server Planet has a firm lending agreement with the bank to renew and extend $1,000,000 of this amount on a 5-year basis. The company intends to exercise this renewal option, but is not yet sure about the final disposition of the remainder.

Liabilities
Current liabilities
$                     -
                       -
                       -
                       -
                       -
                       - $                     -


Supporting calculations:

Explanation / Answer

a) Current Liabilities - If the company does not intends to excercise renewal option

b) Current Liabilities - If the company intends to excercise renewal option

** Remaining $1,000,000 will be shown in Long Term loan

Workings

1) Trade Creditors -

Balance at the beginning - $100,000

Add: Purchases on trade accounts during the year - $ 650,000

Less: Payment on account - $ 610,000

Balance at the end - $ 140,000

2 ) Accruals and Deferred Income

i) Electricity accrual - $ 55,000  

ii) Loan Interest accrual (1,500,000 x 6% x 1 /month 12 month) - $ 7,500

iii) Deferred Income (Amount prepaid by customers) - $ 375,000

Accruals and Deferred income at the end - $ 437,500

i) Trade Creditors $ 140,000 ii) Accruals and Deferred Income $ 437,500 iii) Sales Tax Payable $ 5,000 iv) Bank Loan - upto one year $1,500,000   Total Current Liabilities $2,082,500

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