Deck 14: Long-Term Liabilities

Question 1

On March 1,2018,Mandy Services issued a 3% long-term notes payable for $15,000.It is payable over a 3-year term in $5000 principal installments on March 1 of each year,beginning March 1,2019.Each yearly installment will include both principal repayment of $5000 and interest payment for the preceding one-year period.What is the amount of total cash payment that Mandy will make on March 1,2019?

A) $5000
B) $5450
C) $15,000
D) $5225

Answer 1

B

Question 2

Celebrate Holidays Company signed a 7%,10-year note for $161,000.The company paid an installment of $2500 for the first month.What portion of the first monthly payment is principal? (Do not round any intermediate calculations,and round your final answer to the nearest dollar.)

A) $1561
B) $4061
C) $4830
D) $15,917

Answer 2

A

Question 3

In order to expand its business,the management of Areos,Inc.issued a long-term notes payable for $50,000.The note will be paid over a 10-year period with equal annual principal payments,beginning in one year.The annual interest rate is 12%.Prepare the journal entry for the issuance of the note.Omit explanation.

Answer 3

$$\begin{array} { | l | r | r | } \hline \text { Cash } & 50,000 & \\\hline \text { Long-Term Notes Payable } & & 50,000 \\\hline\end{array}$$

Question 4

On March 1,2018,Vintage Services issued an 8% long-term notes payable for $22,000.It is payable over a 16-year term in $1,375 principal installments on March 1 of each year,beginning March 1,2019.Each yearly installment will include both principal repayment of $1,375 and interest payment for the preceding one-year period.The journal entry to pay the first installment will include a debit to Interest Expense for $1,760.

Question 5

The current portion of notes payable is reported on the balance sheet under current liabilities.

Question 6

On November 1,2018,A-1 Products borrowed $64,000 on a 5%,5-year note with annual installment payments of $12,800 plus interest due on November 1 of each succeeding year.On November 1,2020,what is the balance of the Long-Term Notes Payable account? (Round your answer to nearest whole number.)

A) $38,400
B) $64,000
C) $51,200
D) $12,800

Question 7

On May 1,2018,Plumbing Services issued a long-term note payable for $35,000.The note will be paid over five-years with annual principal payments of $7,000,plus interest,on May 1 of each year beginning on May 1,2019.Prepare the journal entry for the issuance of the note.Omit explanation.

Question 8

The current portion of notes payable is the principal amount that will be paid within two years of the balance sheet date,and the remaining portion is long term.

Question 9

On December 1,2018,Modern Dining Products borrowed $84,000 on a 12%,5-year note with annual installment payments of $16,800 plus interest due on December 1 of each succeeding year.On December 1,the principal amount was recorded as a long-term note payable.What amount of the note payable will be shown as current portion of Long-Term Note Payable on the balance sheet as of December 31,2018? (Round your answer to nearest whole number.)

A) $16,800
B) $26,880
C) $10,080
D) $33,600

Question 10

The issuance of a note is recorded,on the books of the borrower,by crediting Cash and debiting Notes Receivable.

Question 11

On December 1,2018,Garden Products borrowed $92,000 on a 5%,10-year note with annual installment payments of $9200 plus interest due on December 1 of each subsequent year.Which of the following describes the first installment payment made on December 1,2019? (Round your answer to the nearest whole number.)

A) $9200 principal plus $4600 interest
B) $9200 principal plus $460 interest
C) $9200 principal plus $9200 interest
D) $4600 interest only

Question 12

On March 1,2018,Lewis Services issued a 6% long-term notes payable for $18,000.It is payable over a 3-year term in $6000 principal installments on March 1 of each year,beginning March 1,2019.Which of the following entries needs to be made on March 1,2018?

A) $$\begin{array} { | c | r | r | } \hline \text { Long-Term Notes Payable } & 6000 & \\\hline \text { Cash } & & 6000 \\\hline\end{array}$$
B) $$\begin{array} { | c | r | r | } \hline \text { Current Portion of Long-Term Notes Payable } & 18,000 & \\\hline \text { Long-Term Notes Payable } & & 18,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Long-Term Notes Payable } & 18,000 & \\\hline \text { Accounts Payable } & & 18,000 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 18,000 & \\\hline \text { Long-Term Notes Payable } & & 18,000 \\\hline\end{array}$$

Question 13

A note payable can be classified either as a long-term liability or a short-term liability,depending on the discretion of the accountant.

Question 14

When preparing an amortization schedule,the interest expense increases each year because the principal decreases with each installment payment.

Question 15

On March 1,2018,Barker Services issued a 5% long-term notes payable for $21,000.It is payable over a 3-year term in $7000 annual principal payments on March 1 of each year plus interest,beginning March 1,2019.How will the notes payable be shown on the balance sheet dated December 31,2018?

A) $21,000 shown as current liability only
B) $7000 shown as current liability and $21,000 shown as long-term liability
C) $7000 shown as current liability and $14,000 shown as long-term liability
D) the entire $21,000 shown as long-term liability

Question 16

Adventure Travel signed a 14%,10-year note for $152,000.The company paid an installment of $2200 for the first month.After the first payment,what is the principal balance? (Do not round any intermediate calculations,and round your final answer to the nearest dollar.)

A) $149,800
B) $150,227
C) $151,573
D) $154,200

Question 17

In order to expand its business,the management of Hampton,Inc.issued a long-term notes payable for $50,000 on January 1,2018.The note will be paid over a 10-year period with equal annual principal payments,December 31 of each year.The annual interest rate is 12%.Prepare the journal entry for the first installment payment.Omit explanation.

Question 18

On March 1,2018,Everson Services issued a 4% long-term notes payable for $16,000.It is payable over a 4-year term in $4000 annual principal payments on March 1 of each year plus interest,beginning March 1,2019.Each yearly installment will include both principal repayment of $4000 and interest payment for the preceding one-year period.On March 1,2019,________.The accounting period ends on December 31.

A) Everson must accrue $4000 of Interest Expense
B) Everson must accrue the next note payment of $4000 as the current portion of principal payment
C) Everson must pay $640 of interest to the note holder
D) Everson will receive $4000 as an installment payment

Question 19

An amortization schedule details each loan payment's allocation between principal as well as interest and the beginning and ending balances of the loan.

Question 20

Get Away Vacations signed a 14%,10-year note for $157,000.The company paid an installment of $2100 for the first month.What portion of the first monthly payment is interest expense? (Do not round any intermediate calculations,and round your final answer to the nearest dollar.)

A) $268
B) $35,063
C) $15,183
D) $1832

Question 21

On January 1,2018,Allgood Company purchased equipment and signed a six-year mortgage note for $186,000 at 15%.The note will be paid in equal annual installments of $49,148,beginning January 1,2019.Calculate the portion of interest expense paid on the third installment.(Round your answer to the nearest whole number.)

A) $49,148
B) $21,048
C) $27,900
D) $164,752

Question 22

Bonds are short-term debt issued to multiple lenders called bondholders,usually in increments of $1,000 per bond.

Question 23

A-Plus Carpets Company buys a building for $115,000,paying $30,000 cash and signing a 30-year mortgage note for $85,000 at 11%.Prepare the journal entry for the purchase.Omit explanation.

Question 24

On January 1,2018,Benbrook Company purchased equipment and signed a six-year mortgage note for $160,000 at 15%.The note will be paid in equal annual installments of $42,278,beginning January 1,2019.Calculate the balance of Mortgage Payable after the payment of the first installment.(Round your answer to the nearest whole number.)

A) $24,000
B) $117,722
C) $141,722
D) $120,702

Question 25

On January 1,2018,Gadsby Cabinetry Company purchases $300,000 of equipment by paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance.Gadsby will make yearly payments of $46,072.The amortization schedule for the first five payments is provided.
$$\begin{array} { | l | r | r | r | r | r | } \hline & \begin{array} { c } \text { Beginning } \\\text { Balance }\end{array} & \begin{array} { c } \text { Principal } \\\text { Payment }\end{array} & \begin{array} { c } \text { Interest } \\\text { Expense }\end{array} & \begin{array} { c } \text { Total } \\\text { Payment }\end{array} & \begin{array} { c } \text { Ending } \\\text { Balance }\end{array} \\\hline \mathrm { p } 1 / 01 / 2018 & & & & & \$ 250,000 \\\hline \mathrm { p } 1 / 01 / 2019 & \$ 250,000 & \$ 13,572 & \$ 32,500 & \$ 46,072 & 236,428 \\\hline \mathrm { p } 1 / 01 / 2020 & 236,428 & 15,336 & 30,736 & 46,072 & 221,092 \\\hline \mathrm { p } 1 / 01 / 2021 & 221,092 & 17,330 & 28,742 & 46,072 & 203,762 \\\hline \mathrm { p } 1 / 01 / 2022 & 203,762 & 19,583 & 26,489 & 46,072 & 184,179 \\\hline \mathrm { p } 1 / 01 / 2023 & 184,179 & 22,129 & 23,943 & 46,072 & 162,050 \\\hline\end{array}$$ Prepare the journal entries for the purchase of the equipment and for the January 1,2019 mortgage payment.Omit explanations.

Question 26

On January 1,2018,Milton Tools Company purchases machinery with a fair value of $300,000 by paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance.Prepare the journal entry for January 1,2018.Omit explanation.

Question 27

On January 1,2018,Sullivan Company purchases $300,000 of property by paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance.Sullivan will make yearly payments of $46,072.Prepare the amortization schedule for the first five payments.(Round your answers to the nearest dollar.)

Question 28

On January 1,2018,Belview,Inc.issued long-term notes payable for $50,000.The note will be paid over 10 years with payments of $5,000 plus 12% interest due each January 1,beginning January 1,2019.The amortization schedule for the first three payments is provided.Prepare the journal entries for the issuance of the note and for the January 1,2020 note payment.Omit explanation.
$$\begin{array} { | l | r | r | r | r | r | } \hline & \begin{array} { c } \text { Beginning } \\\text { Balance }\end{array} & \begin{array} { c } \text { Principal } \\\text { Payment }\end{array} & \begin{array} { c } \text { Interest } \\\text { Expense }\end{array} & \begin{array} { c } \text { Total } \\\text { Payment }\end{array} & \begin{array} { c } \text { Ending } \\\text { Balance }\end{array} \\\hline \mathrm { p } 1 / 01 / 2018 & & & & & \$ 50,000 \\\hline \mathrm { p } 1 / 01 / 2019 & \$ 50,000 & \$ 5,000 & \$ 6,000 & \$ 11,000 & 45,000 \\\hline \mathrm { p } 1 / 01 / 2020 & 45,000 & 5,000 & 5,400 & 10,400 & 40,000 \\\hline \mathrm { p } 1 / 01 / 2021 & 40,000 & 5,000 & 4,800 & 9,800 & 35,000 \\\hline\end{array}$$

Question 29

On December 31,2018,Anderson Hardware Company purchases $300,000 of property by paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance.The amortization schedule shows that the company will pay $46,072 per year.Journalize the first yearly payment on December 31,2019.Omit explanation.

Question 30

Hardwood Flooring Company buys a building for $115,000,paying $30,000 cash and signing a 30-year mortgage note for $85,000 at 11% annual interest.The payments will be made in equal monthly installments of $809.Prepare the journal entry for the first monthly payment.(Round your answers to the nearest whole dollar number.)Omit explanation.

Question 31

The difference between mortgages payable and notes payable is that notes payable are always secured by specific assets.

Question 32

On January 1,2018,Belden,Inc.issued long-term notes payable for $50,000.The note will be paid over 10 years with payments of $5,000 plus 12% interest due each January 1,beginning January 1,2019.Prepare the amortization schedule for the first three payments.

Question 33

A mortgage payable is a long-term debt that is backed with a security interest in specific property.

Question 34

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

Question 35

On January 1,2018,Shade Landscaping borrowed $100,000 on a 15%,10-year note with annual installment payments of $10,000 plus interest due on December 31 of each year.Prepare the journal entry for the first installment payment made on December 31,2018.Omit explanation.

Question 36

On January 1,2018,Earnest Company purchased equipment and signed a six-year mortgage note for$80,000 at 15%.The note will be paid in equal annual installments of $21,139,beginning January 1,2019.Calculate the portion of principal paid on the third installment.(Round any intermediate calculations to two decimal places,and your final answer to the nearest dollar.)

A) $12,086
B) $12,000
C) $21,139
D) $9053

Question 37

On January 1,2018,Brazos Company purchased equipment and signed a six-year mortgage note for $97,000 at 15%.The note will be paid in equal annual installments of $25,631,beginning January 1,2019.On January 1,2019,the journal entry to record the first installment payment will include a ________.(Round your answer to the nearest whole number.)

A) debit to Mortgage Payable for $25,631
B) debit to Interest Expense for $14,550
C) credit to Cash for $11,081
D) credit to Mortgage Payable for $97,000

Question 38

On April 1,201,Arbor Gardening Products borrowed $100,000 on a 15%,10-year note with annual installment payments of $10,000 plus interest due on April 1 of each subsequent year.Prepare the journal entry for the issuance of the note.Omit explanation.

Question 39

Long-term liabilities can be structured either with an equal principal payment or with an equal total payment.

Question 40

On April 1,2018,Nunez Manufacturers purchases equipment for $100,000,paying $30,000 in cash and signing a 10-year mortgage for $70,000 at 8% annual interest.Prepare the journal entry to record the acquisition of the equipment.Omit explanation.

Question 41

Term bonds all mature at the same specified time.

Question 42

The date on which the principal amount is repaid to the bondholder is known as the ________.

A) issuing date
B) interest date
C) maturity date
D) installment date

Question 43

Which of the following statements is TRUE of a bond that is issued at a premium?

A) The bond will be issued at an amount above face value.
B) The stated interest rate is lower than the prevailing market interest rate.
C) At maturity, the bond will repay an amount that is greater than the face value.
D) The bond will be issued at par.

Question 44

Which of the following is the amount the borrower must pay back to the bondholders at maturity?

A) market value
B) present value
C) stated interest value
D) principal amount

Question 45

On the maturity date,the bondholder is paid the face amount of the bond plus the last interest payment.

Question 46

Secured bonds give bondholders the right to take specified assets of the issuer if the issuer fails to pay principal or interest.

Question 47

Debentures are backed only by the goodwill of the bond issuer.

Question 48

Which of the following describes a debenture?

A) a bond that matures in installments at regular intervals
B) a bond that gives the bondholder a claim for specific assets
C) a bond that matures at one specified time
D) a bond that is not backed by specific assets

Question 49

The reason investors buy bonds is to ________.

A) earn interest
B) own controlling interest in the company
C) exercise voting rights in a company
D) receive dividend payments

Question 50

Debentures are bonds that mature in installments at regular intervals.

Question 51

Provide a definition of each of the following types of bonds.
$$\begin{array} { | l | l | } \hline \text { Bond Type } & \text { Definition } \\\hline \text { Term } & \\\hline \text { Serial } & \\\hline \text { Secured } & \\\hline \text { Debenture } & \\\hline\end{array}$$

Question 52

If bonds with a face value of $204,000 are issued at par,the amount of cash proceeds is ________.

A) $203,890
B) $204,000
C) $224,400
D) $244,800

Question 53

If a bond is issued at a premium,the issue price is greater than face value.

Question 54

The issue price of a bond-whether it is issued at par,premium,or discount-has an effect on the principal repayment at maturity.

Question 55

Which of the following describes a secured bond?

A) a bond that matures in installments at regular intervals
B) a bond that is backed by issuer's specific assets
C) a bond that matures at one specified time
D) a bond that is not backed by specific assets

Question 56

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

A) The bond will be issued at par.
B) The stated interest rate is higher than the prevailing market interest rate.
C) At maturity, the bond will repay an amount that is less than the face value.
D) The bond will be issued for an amount less than the face value.

Question 57

Which of the following describes a serial bond?

A) a bond that matures in installments at regular intervals
B) a bond that gives the bondholder a claim for specific assets
C) a bond that matures at one specified time
D) a bond that is not backed by specific assets

Question 58

If a bond is issued at a discount,the issue price is greater than face value.

Question 59

After a bond is issued,investors may buy and sell it through the bond market.

Question 60

If bonds with a face value of $209,000 are issued at 93,the amount of cash proceeds is ________.

A) $208,907
B) $209,000
C) $194,370
D) $179,740

Question 61

When a bond is issued at a price higher than the face value,the difference is known as a ________.

A) premium
B) discount
C) maturity value
D) face value

Question 62

Future value is always less than present value.

Question 63

Which of the following statements is TRUE if a bond's stated interest rate is higher than the market rate?

A) The bond will be issued at a premium.
B) The bond will be issued at par.
C) The bond will be issued at a discount.
D) The bond will be issued for an amount lower than the maturity value.

Question 64

When a bond is issued,the issue price is the present value of the interest payments the bondholder will receive while holding the bond,plus the present value of the bond principal that will be received at maturity.

Question 65

The market rate of interest ________.

A) is also known as the stated rate of interest
B) affects the amount of cash interest the borrower pays each year
C) is printed on the bond and does not change from year to year
D) works with the stated rate of interest to set the price of a bond

Question 66

The future value is the bond's market price.

Question 67

Which of the following concepts represent the time value of money?

A) the concept that money becomes obsolete over time
B) the concept that money earns interest over time
C) the concept that money loses its purchasing power over time
D) the concept that money can be converted into other currencies over time

Question 68

The interest rate that determines the amount of cash interest the borrower pays and the investor receives each year is called the ________.

A) amortization rate
B) market interest rate
C) stated interest rate
D) discounting rate

Question 69

If bonds with a face value of $205,000 are issued at 110,the amount of cash proceeds is ________.

A) $225,390
B) $205,000
C) $186,364
D) $225,500

Question 70

Regarding the time value of money,which of the following statements is incorrect?

A) The time value of money is recognition that money earns interest over time.
B) The time value of money affects bond prices.
C) Present value is always greater than future value.
D) Future value is the value of an investment at the end of a specific time frame.

Question 71

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

A) The bond will be issued at a premium.
B) The bond will be issued at par.
C) The bond will be issued at a discount.
D) The bond will be issued for an amount higher than the maturity value.

Question 72

A bond is issued at a discount when a bond's stated interest rate is ________.

A) equal to the market interest rate
B) more than the effective interest rate
C) less than the market interest rate
D) more than the market interest rate

Question 73

A bond is issued at premium ________.

A) when a bond's stated interest rate is equal to the market interest rate
B) when a bond's stated interest rate is less than the effective interest rate
C) when a bond's stated interest rate is less than the market interest rate
D) when a bond's stated interest rate is higher than the market interest rate

Question 74

Present value is the amount a person would invest now to receive a greater amount in the future.

Question 75

The interest rate on which cash payments to bondholders are based is the ________.

A) market rate
B) discount rate
C) stated rate
D) amortization rate

Question 76

The amount of cash interest the borrower pays each year is based on the ________.

A) market conditions on the day of payment
B) market interest rate
C) stated interest rate
D) effective interest rate

Question 77

State Street Beverage Company issues $805,000 of 9%,10-year bonds on March 31,2017.The bonds pay interest on March 31 and September 30.Which of the following statements is TRUE?

A) If the market rate of interest is 10%, the bonds will issue at a premium.
B) If the market rate of interest is 10%, the bonds will issue at a discount.
C) If the market rate of interest is 10%, the bonds will issue at par.
D) If the market rate of interest is 10%, the bonds will issue above par.

Question 78

Which of the following statements is TRUE if a bond's stated interest rate is the same as the market rate?

A) The bond will be issued at a premium.
B) The bond will be issued at par.
C) The bond will be issued at a discount.
D) The bond will be issued for an amount lower than the maturity value.

Question 79

Money earns interest over time,a fact called the time value of money.

Question 80

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