Problem 3 (15 points)
At the financial statement date of December 31, 2012, the liabilities outstanding of Packard
Corporation included the following:
1. Cash dividends on common stock, $40,000, payable on January 15, 2013.
2. Note payable to Galena State Bank, $470,000, due January 20, 2013.
3. Serial bonds, $1,400,000, of which $350,000 mature during 2013.
4. Note payable to Third National Bank, $300,000, due January 27, 2013.
The following transactions occurred early in 2013:
January 15: The cash dividends on common stock were paid.
January 20: The note payable to Galena State Bank was paid.
January 25: The corporation entered into a financing agreement with Galena State Bank,
enabling it to borrow up to $500,000 at any time through the end of 2015.
Amounts borrowed under the agreement would bear interest at 1% above the
bank's prime rate and would mature 3 years from the date of the loan. The
corporation immediately borrowed $400,000 to replace the cash used in paying
its January 20 note to the bank.
January 26: 40,000 shares of common stock were issued for $350,000. $300,000 of the
proceeds was used to liquidate the note payable to Third National Bank.
February 1: The financial statements for 2012 were issued.
Prepare a partial balance sheet for Packard Corporation, showing the manner in which the
above liabilities should be presented at December 31, 2012. The liabilities should be properly
classified between current and long-term, and appropriate note disclosure should be included.
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