Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

A mortgage payable is a debt that is backed with a security interest in property.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Blanding Company issues $1,174,000 of 12%,10-year debentures at 99 on 28 February 2017.The debentures pay interest on 28 February and 31 August.Assume that Blanding uses the straight-line method for amortisation.What is the journal entry to record the first interest payment on 31 August 2017? (Round to the nearest dollar. )

Accepted Answer

A) debit to Discount on debentures payable for $587 
B) debit to Cash for $70,440 
C) debit to Interest expense for $71,027 
D) debit to Interest expense for $69,853

Question 6

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

Accepted Answer

A) The debenture is not secured by specific assets of the issuer. 
B) The debenture's stated rate is lower than the prevailing market rate at time of sale. 
C) The debenture's stated rate is higher than the prevailing market rate at time of sale. 
D) The debenture's stated rate is the same as the prevailing market rate at time of sale.

Question 7

Which of the following describes a serial debenture?

Accepted Answer

A) A debenture that repays principal in instalments 
B) A debenture that is not backed by specific assets 
C) A debenture that gives the debenture holder a claim for specific assets if the issuer fails to pay 
D) A debenture that matures at one specified time

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

The balance in the Debentures payable account is a credit of $50 000.The balance in the Discount on debentures payable is a debit of $1 500.The balance sheet will report the debenture balance as $48 500.

Accepted Answer

A) True 
 B)False

Question 10

On 1 January 2017,Bratios Company purchases equipment and signs a 6-year mortgage payable for $110,000 at 15%.The mortgage will be paid in equal annual instalments of $29,066,beginning 1 January 2018.Calculate the balance of the Mortgage payable account after the payment of the first instalment.

Accepted Answer

A) $16,500 
B) $82,983 
C) $80,934 
D) $97,434

Question 11

On 1 January 2017,Finch Company issued $75,000 of five year debentures with a stated rate of 8%.The market rate at time of issue was 12%,so the debentures were discounted and sold for $74,401.Finch uses the effective-interest method of amortisation for debenture discount.Half-yearly interest payments are made on 30 June and 31 December of each year.Which of the following is the correct journal entry to record the first interest payment? (Round all amounts to the nearest dollar. )

Accepted Answer

A)  $$\begin{array} { | c | l | l | } 
\hline \text { Interest expense } & \$ 4500 & \
\hline \text { Cash } & & \$ 4500 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | l | } 
\hline \text { Interest expense } & \$ 4500 & \
\hline\text { Discount on debentures } & & \
\text { payable } & & 3000 \
\hline \text { Cash } & & 1500 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | l | l | } 
\hline \text { Interest expense } & \$ 464 & \
\hline \begin{array} { l } 
\text { Discount on debentures } \
\text { payable }
\end{array} & & 1464 \
\hline \text { Cash } & & 3000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | l | l | } 
\hline \text { Interest expense } & \$ 3000 & \
\hline \text { Discount on debentures payable } & 1500 & \
\hline \text { Cash } & & \$ 4500 \
\hline
\end{array}$$

Question 12

Which of the following describes a term debenture?

Accepted Answer

A) A debenture that matures at one specified time 
B) A debenture that repays principal in instalments 
C) A debenture that gives the debenture holder a claim for specific assets if the issuer fails to pay 
D) A debenture that is not backed by specific assets

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

The difference between a mortgage payable and a note payable is that notes payable are always long-term.

Accepted Answer

A) True 
 B)False

Question 15

The Amazing Widget Company issues $508,000 of 8%,10-year debentures at 105 on 30 April 2017.The debentures pay interest on 30 April and 31 October.Assume that the company uses the straight-line method for amortisation.Calculate the net balance that will be reported for the debentures on the balance sheet on 31 October 2017.

Accepted Answer

A) $508,000 
B) $532,130 
C) $534,670 
D) $533,400

Question 16

On 1 March 2017,Vinnie Services issued a 5% long-term note payable for $18,000.It is payable over a 3-year term in $6000 principal instalments on 1 March of each year,beginning 1 March 2018.Each yearly instalment will include both principal repayment of $6000 and interest payment for the preceding one-year period.What is the amount of total cash payment that the Vinnie will make on 1 March 2018?

Accepted Answer

A) $6900 
B) $6450 
C) $6000 
D) $18,000

Question 17

On 1 July 2016,Avery Services issued a long-term note payable for $10 000.It is payable over a five 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 2016?

Accepted Answer

A) $2 000 shown as current liability;$8 000 shown as non-current liability 
B) $2 000 shown as current liability;$10 000 shown as non-current liability 
C) The entire $10 000 shown as non-current liability 
D) $10 000 shown as current liability only

Question 18

On 1 March 2017,Vinnie Services issued a 6% long-term note payable for $20,000.It is payable over a 5-year term in $4000 annual principal payments on 1 March of each year plus interest,beginning 1 March 2018.How will this information be shown on the balance sheet dated 31 December 2017?

Accepted Answer

A) $20,000 shown as current liability only 
B) $4000 shown as current liability;$16,000 shown as long-term liability 
C) the entire $20,000 shown as long-term liability 
D) $4000 shown as current liability;$20,000 shown as long-term liability

Question 19

Instalment payments for mortgages are normally paid once per year.

Accepted Answer

A) True 
 B)False

Question 20

Trek Company signed a 9%,10-year note for $155,000.The company paid $2900 as the instalment for the first month.After the first payment,what is the updated principal balance? (Round to the nearest dollar. )

Accepted Answer

A) $153,837 
B) $157,900 
C) $153,263 
D) $152,100

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

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

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

A mortgage payable is a debt that is backed with a security interest in property.

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

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

Which of the following describes a serial debenture?

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.

The balance in the Debentures payable account is a credit of $50 000.The balance in the Discount on debentures payable is a debit of $1 500.The balance sheet will report the debenture balance as $48 500.

On 1 January 2017,Bratios Company purchases equipment and signs a 6-year mortgage payable for $110,000 at 15%.The mortgage will be paid in equal annual instalments of $29,066,beginning 1 January 2018.Calculate the balance of the Mortgage payable account after the payment of the first instalment.

Which of the following describes a term debenture?

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

The difference between a mortgage payable and a note payable is that notes payable are always long-term.

On 1 March 2017,Vinnie Services issued a 6% long-term note payable for $20,000.It is payable over a 5-year term in $4000 annual principal payments on 1 March of each year plus interest,beginning 1 March 2018.How will this information be shown on the balance sheet dated 31 December 2017?

Instalment payments for mortgages are normally paid once per year.

Trek Company signed a 9%,10-year note for $155,000.The company paid $2900 as the instalment for the first month.After the first payment,what is the updated principal balance? (Round to the nearest dollar. )