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

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. On 30 June 2013, the first half- yearly interest payment is made. The journal entry to record that interest payment will include which of the following line items?

The balance in the Debentures payable account is a credit of $50 000. The balance in the Premium on debentures payable account is a credit of $900. The debenture carrying amount is $50 900.

The Amazing Widget Company issues $500 000 of 6%, 10- year debentures at 103 on 31 March 2014. The debenture pays interest on 31 March and 30 September. The market rate of interest on the issue date was 4%. Assume the company uses the straight- line method for amortisation. What net balance will be reported for the debentures on the balance sheet on 30 September 2014?

GST Clearing would normally be shown on the balance sheet in non- current liabilities.

The time value of money is based on which of the following concepts?

On 1 July 2013, Avery Services issued a long- term note payable for $10 000. It is payable over a 5- year term in $2 000 instalments on 1 July of each succeeding year. When the note was issued, the principal amount was recorded in long- term notes payable and a second entry was made to reclassify the current portion. How will this information be shown on the balance sheet dated 31 December 2013?

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. On 30 June 2013, the first half- yearly interest payment is made. How much will be paid out to debenture holders on 30 June 2013?

The time value of money is related to which of the following concepts?

Instalment payments for mortgages typically contain both an amount for principal repayment and an amount for interest.

On 2 January 2014, Mahoney Sales issued $10 000 in debentures for $9 400. They were 5- year debentures with a stated rate of 4%, and pay half- yearly interest payments. Mahoney Sales uses the straight- line method to amortise the debenture discount. After the first interest payment on 30 June 2014, what was the debenture carrying amount?

On 2 January 2014, Mahoney Sales issued $10 000 in debentures for $10 900. They were 5- year debentures with a stated rate of 4%, and pay half- yearly interest payments. Mahoney Sales uses the straight- line method to amortise the debenture premium. After the first interest payment on 30 June 2014, what was the debenture carrying amount?

The market rate is the rate used to calculate the actual cash payments made to debenture holders.

On 1 November 2015, Archangel Services issued $200 000 of 10- year debentures with a stated rate of 3%. The debentures were sold at par, and make half- yearly payments on 30 April and 31 October. At 31 December 2015, Archangel made an adjusting entry to accrue interest at year- end. No further entries were made until 30 April 2016, when the first payment was sent out. At that time, how much interest expense was recorded for the period of January to April 2016?

On 1 November 2015, Archangel Services issued $200 000 of 10- year debentures with a stated rate of 3%. The debentures were sold at discount for $191 000, and make half- yearly payments on 30 April and 31 October. At 31 December 2015, Archangel made an adjusting entry to accrue interest at year- end. How much interest expense is recorded at 31 December 2015?

On 1 November 2013, EZ Products borrowed $48 000 on a 5%, 10- year note with annual instalment payments of $4 800 plus interest due on 1 November of each succeeding year. Which of the following describes the first instalment payment made on 1 November 2014?

On 1 January 2014, Davie Services issued $20 000 of 8% debentures that mature in five years. They were sold at a premium, for a total of $20 750. The debentures pay half- yearly interest payments on 30 June and 31 December of each year. On 30 June 2014, how much is the total amount paid to debenture holders?

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. The first monthly payment was made in January 2013. After the first payment, what is the updated principal balance?

When a debenture is sold, the selling price is generally equivalent to the present value of the debenture payments.

On 1 November 2015, Archangel Services issued $200 000 of 10- year debentures with a stated rate of 3%. The debentures were sold at discount for $191 000, and make half- yearly payments on 30 April and 31 October. At 31 December 2015, Archangel made an adjusting entry to accrue interest at year- end. No further entries were made until 30 April 2016 when the first interest payment was made. How much interest expense will be recorded for the period of January to April 2016?

The current portion of notes payable must be reported on the balance sheet combined with the long- term portion under non- current liabilities.