Chapter 12: 1RQ (page 654)
Where is the current portion of notes payable reported on the balance sheet?
The current portion of the notes payable means the portion which becomes due within 12 months.
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What type of account is Premium on Bonds Payable? What is its normal balance? Is it added to or subtracted from the Bonds Payable account to determine the carrying amount?
Analyzing, journalizing, and reporting bond transactions
Johnny’s Hamburgers issued 8%, 10-year bonds payable at 85 on December 31, 2018.
At December 31, 2020, Johnny reported the bonds payable as follows:
Long-term Liabilities:
Bonds Payable \( 300,000
Less: Discount on Bonds Payable (36,000) \) 264,000
Johnny pays semiannual interest each June 30 and December 31.
Requirements
1.Answer the following questions about Johnny’s bonds payable:
a.What is the maturity value of the bonds?
b.What is the carrying amount of the bonds at December 31, 2020?
c.What is the semiannual cash interest payment on the bonds?
d.How much interest expense should the company record each year?
2. Record the June 30, 2020, semiannual interest payment and amortization of discount.
Journalizing liability transactions and reporting them on the balance
sheet
The following transactions of Johnson Pharmacies occurred during 2018 and 2019:
2018
Mar. 1 Borrowed \(450,000 from Coconut Creek Bank. The 15-year, 5% note requires
payments due annually, on March 1. Each payment consists of \)30,000 principal
plus one year’s interest.
Dec. 1 Mortgaged the warehouse for \(250,000 cash with Saputo Bank. The mortgage
requires monthly payments of \)8,000. The interest rate on the note is 12% and
accrues monthly. The first payment is due on January 1, 2019.
31 Recorded interest accrued on the Saputo Bank note.
31 Recorded interest accrued on the Coconut Creek Bank note.
2019
Jan. 1 Paid Saputo Bank monthly mortgage payment.
Feb. 1 Paid Saputo Bank monthly mortgage payment.
Mar. 1 Paid Saputo Bank monthly mortgage payment.
1 Paid first installment on note due to Coconut Creek Bank.
Requirements
1. Journalize the transactions in the Johnson Pharmacies general journal. Round to
the nearest dollar. Explanations are not required.
2. Prepare the liabilities section of the balance sheet for Johnson Pharmacies on
March 1, 2019 after all the journal entries are recorded.
In regard to a bond discount or premium, what is the straight-line amortization
method?
S12A-13 Determining present value
Your grandfather would like to share some of his fortune with you. He offers to give
you money under one of the following scenarios (you get to choose):
2. \)49,650 (lump sum) now
3. $100,450 (lump sum) six years from now
C H A P T E R 1 2
Requirements
1. Calculate the present value of each scenario using a 6% discount rate. Which scenario
yields the highest present value? Round to the nearest dollar.
2. Would your preference change if you used a 12% discount rate?
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