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

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. The first monthly payment was made in January, 2013. Please provide the journal entry for the first monthly payment.

The Amazing Widget Company issues $500,000 of 6%, 10-year bonds at 103 on March 31, 2014. The bond pays interest on March 31 and September 30. The market rate of interest on the issuance date was 4%. Assume the company uses the straight-line method for amortization. The journal entry to record the issuance would include a:

On October 15, 2013, Rural Sales has a bond with balances as shown below. If Rural Sales wishes to retire the bonds for $82,000, what will be the effect on the income statement?

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

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

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

Blanding Company issues $1,000,000 of 8%, 10-year bonds at 98 on February 28, 2014. The bond pays interest on February 28 and August 31. The market rate of interest on the issuance date was 10%. Assume Blanding uses the straight-line method for amortization. The interest accrual entry at December 31, 2014 would include:

The balance in the Bonds payable account is a credit of $50,000. The balance in the Discount on bonds payable account is a debit of $1,500. The bond carrying amount is $51,500.

On January 1, 2013, Diab Services issued $140,000 of 4-year bonds with a stated rate of 9%. The market rate at time of issue was 8%, so the bonds were issued at a premium and sold for $144,758. Diab uses the effective-interest method to amortize bond premium. Semiannual interest payments are made on June 30 and December 31 of each year. Please complete the amortization table for the first four interest payments.

On January 1, 2013, Thames Company purchases property and signs a 6-year mortgage note $60,000 at 4%. Please see the partial amortization schedule below. At the end of 2013, what amount would be shown on the balance sheet for mortgage payable (excluding the current portion)?

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 straight-line method to amortize bond discount. Immediately after issue of the bonds, the ledger balances appeared as follows: After the second interest payment on December 31, 2014, what was the balance in the discount account?

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. Please provide the journal entry to issue the bonds.

On January 1, 2013, Diab Services issued $140,000 of 4-year bonds with a stated rate of 9%. The market rate at time of issue was 8%, so the bonds were issued with a premium and sold for $144,758. Diab uses the effective-interest method to amortize bond premium. Semiannual interest payments are made on June 30 and December 31 of each year. How much interest expense will be recorded when the first interest payment is made?

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

On January 1, 2012, Davie Services issued $20,000 of 8% bonds that mature in five years. They were sold at a premium, for a total of $20,750. On January 1, 2017, when the bonds mature, Davie Services will make the final principal payment. That entry will include which of the following?

On January 1, 2013, Davie Services issued $20,000 of 8% bonds that mature in five years. They were sold at discount, for a total of $19,000. Please provide the journal entry to issue the bonds.

On November 1, 2012, 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. On December 31, 2013, what will the balance be in the account titled Current portion of long-term notes payable?

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

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

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