Chapter 12: 2RQ (page 654)
What is an amortization schedule?
Amortization is a process by which thw amount of the liability is decreased with the help of regular payments.
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Determining the present value of bonds payable
Interest rates determine the present value of future amounts. (Round to the nearest
dollar.)
Requirements
1. Determine the present value of 10-year bonds payable with face value of $86,000
and stated interest rate of 14%, paid semiannually. The market rate of interest is
14% at issuance.
2. Same bonds payable as in Requirement 1, but the market interest rate is 16%.
3. Same bonds payable as in Requirement 1, but the market interest rate is 12%.
Accounting for a long-term note payable
On January 1, 2018, Lakeman-Fay signed a \(1,500,000, 15-year, 7% note. The loan
required Lakeman-Fay to make annual payments on December 31 of \)100,000
principal plus interest.
Requirements
1. Journalize the issuance of the note on January 1, 2018.
2. Journalize the first note payment on December 31, 2018.
What is a bond payable?
Analyzing, journalizing, and reporting bond transactions
Danny’s Hamburgers issued 6%, 10-year bonds payable at 90 on December 31, 2018.
At December 31, 2020, Danny reported the bonds payable as follows:
Long-term Liabilities:
Bonds Payable \( 600,000
Less: Discount on Bonds Payable (48,000) \) 552,000
Danny’s pays semiannual interest each June 30 and December 31.
Requirements
1. Answer the following questions about Danny’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.
Where is the current portion of notes payable reported on the balance sheet?
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