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

The Cases Company issues $800 000 of 7%, 10- year debentures on 31 March 2013. The debenture pays interest on 31 March and 30 September. Which of the following statements is TRUE?

Which of the following occurs when a debenture's stated interest rate is less than the market interest rate?

The main reason companies redeem debentures prior to their maturity date is to relieve the pressure of paying interest payments.

On 1 January 2014, Partridge Company issued $50 000 of 6- year debentures with a stated rate of 3%. The market rate at time of issue was 4%, so the debentures were discounted and sold for $47 331. Partridge uses the effective- interest rate of amortisation for debenture discount. Half- yearly interest payments are made on 30 June and 31 December of each year. How much interest expense will be recorded when the first interest payment is made? (Please round to the nearest whole dollar.)

A debenture is sold for an amount higher than face value. Which of the following statements would explain why?

A debenture is sold for an amount less than its face value. Which of the following statements would explain why?

On 1 July 2013, Avery Services issued a 4% long- term note payable for $10 000. It is payable over a 5- year term in $2 000 principal instalments on 1 July of each year. Each yearly instalment will include both principal repayment of $2 000 and interest payment for the preceding one- year period. What happens on 31 December 2013 before statements are prepared?

If a debenture is issued at a premium, it will sell for more than face value.

When a company accrues interest payable on a long- term note at year- end, the interest payable must be shown as a non- current liability on the balance sheet, along with the long- term note payable balance.

Debentures are non- current liabilities issued to multiple lenders, usually in increments of $1 000.

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

If a company issues a debenture in- between interest payments, the company can pay a prorated portion of the interest payment on the regular payment date.

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. The journal entry to record the issue would include a:

The time value of money is based on the concept that money earns interest over time.

Which of the following is TRUE of a premium on debentures payable?

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 principal?

Which of the following describes a serial debenture?

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 interest accrual entry at 31 December 2014 would include:

The current portion of notes payable is the principal amount that will be paid within one year of the balance sheet date.

The debenture carrying amount is the balance in the debenture payable account subtracted from or added to the balance in either the discount or premium account.