Exam 12: Non-Current Liabilities, Debentures Payable and Classification of Liabilities on the Balance Sheet

Blanding Company issues $1 000 000 of 8%, 10- year debentures at 98 on 28 February 2014. The debenture pays interest on 28 February and 31 August. The market rate of interest on the issue date was 10%. Assume Blanding uses the straight- line method for amortisation. The journal entry to record the first interest payment on 31 August 2014 would be a:

Which of the following statements is TRUE about a debenture that is issued at a discount?

Premium on debentures payable is spread over the term of the debentures and reduces total interest expense.

The reason people buy debentures is to:

The current portion of notes payable would normally be shown on the balance sheet in non- current liabilities.

McDonald Sales prepared a debenture issue of $20 000 dated 1 January 2013. The debentures have a stated rate of 3% and a term of 6 years. The debenture issue was delayed, and the debentures were finally sold on 1 March 2013 at par. The journal entry to record the issue of the debentures on 1 March 2013 will include which of the following?

Instalment payments for mortgages are normally paid once per year.

Blanding Company issues $1 000 000 of 8%, 10- year debentures at 98 on 28 February 2014. The debenture pays interest on 28 February and 31 August. The market rate of interest on the issue date was 10%. Assume Blanding uses the straight- line method for amortisation. What net balance will be reported for the debentures on the balance sheet on 31 August 2014?

If a debenture's stated interest rate is lower than the market rate, which of the following is TRUE?

If debentures with a face value of $100 000 are sold at par, the amount of cash proceeds is:

If $10 000 is invested for one year and earns an annual interest rate of 7%, it will grow in value to:

Discount on debentures payable is considered to be additional interest expense of the company that issues the debenture.

Which of the following is the amount the borrower must pay back to the debenture holders?

When a long- term note payable is issued, the entire amount should be initially recorded as a long- term note payable.

On 31 December 2013, Peterson Sales has a debentures payable balance of $40 000 and a premium on debentures payable of $900. On the balance sheet, how will this information be shown?

If debentures with a face value of $100 000 are sold at 88, the amount of cash proceeds is:

Once a debenture has been sold to a debenture holder, it may not be re- sold to other investors, but must be held by the first buyer until maturity.

Paris Company buys a building on a plot of land for $100 000, paying $20 000 cash and signing a 20- year mortgage payable for $80 000 at 6%. Monthly payments are $570. What portion of the first monthly payment is interest expense?

Balances for debentures payable on the balance sheet will show the balances minus any discount or plus any premium.

Which of the following describes a term debenture?