Question - Kendall Products began operations in 2013. Kendall's fiscal year ends on December 31. Kendall issued its 2013 financial statements on February 15, 2014.
2013 Activity:
a. On September 1, Kendall borrowed $10,000,000 on a short-term line of credit with Big Bank. Kendall can repay the amount any time within the next six months. The borrowing carries a 6% interest rate with interest payable on the first of each month (i.e. first interest payment is due on October 1, 2013). Kendall intends to use the line of credit to provide temporary financing until long-term financing can be arranged.
b. On October 1, Kendall borrowed $1,000,000 from Small Bank by signing a 5-year promissory note with 8% interest payable at maturity. Although the note is callable at any time by the lender, Kendall management expects to pay the entire amount due at maturity.
c. Kendall sold $3,000 in gift cards on a special promotion on October 15, 2013, and sold $4,500 in gift cards on another special promotion on November 15, 2013. Of the gift cards sold in October, $300 were redeemed in October, $750 in November and $900 in December. Of the gift cards sold in November, $450 were redeemed n November and $1,050 were redeemed in December. Kendall views the probability of redemption of a gift card as remote if the card has not been redeemed within two months.
Additional information:
a. On January 5, 2014 Kendall refinanced the short-term line of credit by obtaining a three-year loan from Big Bank with a 9% interest rate.
b. On March 1, 2014 Small Bank waived its right to call the promissory note.
Required - Prepare the liability section of the balance sheet at December 31, 2013 based on the information provided. Be sure to list current and noncurrent liabilities in separate sections.