Exam 11: Long-Term Liabilities, Bonds Payable, and Classification of Liabilities on the Balance Sheet

If a company wishes to retire bonds early, they may call the bonds if the bonds are callable, but they may not purchase them on the open market.

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

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

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

A bond is sold for an amount equal to its face value. Which of the following statements would explain why?

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

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

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

On November 1, 2013, Archangel Services issued $200,000 of 10-year bonds with a stated rate of 3%. The bonds were sold at discount for $191,000 and make semiannual payments on April 30 and October 31. At December 31, 2013, Archangel made an adjusting entry to accrue interest at year-end. No further entries were made until April 30, 2014 when the first interest payment was made. Please provide the journal entry for that payment.

On July 1, 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 installments on July 1 of each year. Each yearly installment will include both principal repayment of $2,000 and interest payment for the preceding one-year period. Please provide the journal entry needed on July 1, 2014 when the first installment payment is made.

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

On July 1, 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 installments on July 1 of each year. Which of the following entries needs to be made at July 1, 2013 to reclassify the current portion of the note?

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

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

Accounts payable is always shown on the balance sheet in current liabilities.

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

Interest payable would normally be shown on the balance sheet in current liabilities.

On November 1, 2013, Archangel Services issued $200,000 of 10-year bonds with a stated rate of 3%. The bonds were sold at par and make semiannual payments on April 30 and October 31. At December 31, 2013, Archangel made an adjusting entry to accrue interest at year-end. No further entries were made until April 30, 2014, when the first payment was sent out. Please provide the journal entry for this payment.

On November 1, 2014, EZ Products borrowed $48,000 on a 5%, 10-year note with annual installment payments of $4,800 plus interest due on November 1 of each succeeding year. At the end of 2014, EZ Products accrued interest expense. No further entries were made until November 1, 2015 when the first installment payment was made. That payment included both principal and interest. Please provide the journal entry for the installment payment made on November 1, 2015.

On January 1, 2013, Davie Services issued $20,000 of 8% bonds that mature in five years. They were issued at par-for the same amount as the face value. On January 1, 2018, when the bonds mature, Davie Services will make the final principal payment. Please provide the journal entry for that payment.