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Exam 12: Long-Term Liabilities

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Question 21

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Debentures are bonds that mature in installments at regular intervals.

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Question 22

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Callable bonds are bonds that the issuer may call and pay off at a specified price whenever the issuer wants.

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Question 23

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On December 1, 2018, Modern Dining Products borrowed $84,000 on a 12%, 5-year note with annual installment payments of $16,800 plus interest due on December 1 of each succeeding year. On December 1, the principal amount was recorded as a long-term note payable. What amount of the note payable will be shown as current portion of Long-Term Note Payable on the balance sheet as of December 31, 2018? (Round your answer to nearest whole number.)

On January 1, 2018, Belview, Inc. issued long-term notes payable for $50,000. The note will be paid over 10 years with payments of $5,000 plus 12% interest due each January 1, beginning January 1, 2019. The amortization schedule for the first three payments is provided. Prepare the journal entries for the issuance of the note and for the January 1, 2020 note payment. Omit explanation. $\begin{array} { | l | r | r | r | r | r | } \hline & \begin{array} { c } \text { Beginning } \\\text { Balance }\end{array} & \begin{array} { c } \text { Principal } \\\text { Payment }\end{array} & \begin{array} { c } \text { Interest } \\\text { Expense }\end{array} & \begin{array} { c } \text { Total } \\\text { Payment }\end{array} & \begin{array} { c } \text { Ending } \\\text { Balance }\end{array} \\\hline \mathrm { 0 } 1 / 01 / 2018 & & & & & \$ 50,000 \\\hline \mathrm { 0 } 1 / 01 / 2019 & \$ 50,000 & \$ 5,000 & \$ 6,000 & \$ 11,000 & 45,000 \\\hline \mathrm { 0 } 1 / 01 / 2020 & 45,000 & 5,000 & 5,400 & 10,400 & 40,000 \\\hline \mathrm { 0 } 1 / 01 / 2021 & 40,000 & 5,000 & 4,800 & 9,800 & 35,000 \\\hline\end{array}$

The current portion of notes payable is the principal amount that will be paid within two years of the balance sheet date, and the remaining portion is long term.

At December 31, 2018, Micro Instruments owes $47,000 on Accounts Payable. The balance of Salaries Payable is $14,000 and the balance of Income Tax Payable is $8,000. Micro also has $250,000 of Bonds Payable that were issued at face value. These bonds require payment of a $25,000 installment next year and payment of the remainder in later years. The bonds payable require an annual interest payment of $7,500. Micro still owes this for the current year. Requirement: Report Micro Instruments' liabilities on its classified balance sheet on December 31, 2018.

On January 1, 2019, First Street Sales issued $38,000 in bonds for $15,700. These are six-year bonds with a stated interest rate of 16% that pay semiannual interest. First Street Sales uses the straight-line method to amortize the Bond Discount. Immediately after the issue of the bonds, the ledger balances appeared as follows: Discount on Bonds Payable After the first interest payment on June 30, 2019, what is the balance of Discount on Bonds Payable? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Using the effective-interest amortization method, the calculation for the amount of premium amortization is the difference between the cash paid for interest and the calculated interest expense based on the effective interest rate.

The future value is the bond's market price.

Which of the following is true of the Discount on Bonds Payable account? The bonds are due in ten years.

The balance in the Bonds Payable account is a credit of $67,000. The balance in the Discount on Bonds Payable account is a debit of $2,650. The bond's carrying amount is $64,350.

When computing the present value of a bond, which interest rate is used? Why?

On January 1, 2019, Drake Services issued $20,000 of 8% bonds that mature in five years. The bonds were issued at par. Prepare the journal entry to issue bonds. Omit explanation.

The effective-interest amortization method allocates an amount of bond discount or premium, based on the stated rate of interest, to each interest period over the life of the bond.

Earning more income on borrowed money than the related interest expense is called ________.

England Corporation issued a $400,000, 5.5%, 10-year bonds payable at 101 on January 1, 2009. The bonds are retired on January 1, 2019. Prepare the journal entries on the date of issuance and at the date of retirement. Omit explanations.

The Current Portion of Long-Term Notes Payable would normally be shown on the balance sheet under current liabilities.

On March 21, 2019, the bond accounts of Fitzhugh Sales showed the following balances. Fitzhugh Sales retires the bonds for $66,150. Prepare the journal entry to record the retirement of the bonds. Omit explanation.

On January 1, 2019, Outdoor Services issued $20,000 of 8% bonds that mature in five years. They were issued at par. The bonds pay semiannual interest payments on June 30 and December 31 of each year. Provide the journal entry for the payment made on June 30, 2019. Omit explanation.

The date on which the principal amount is repaid to the bondholder is known as the ________.