Chapter 12: 3RQ (page 654)
What is a mortgage payable?
Long-term liability is a liability that is due in more than one yaer.
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Using the effective-interest amortization method
On December 31, 2018, when the market interest rate is 8%, Biggs Realty issues
\(450,000 of 5.25%, 10-year bonds payable. The bonds pay interest semiannually. The
present value of the bonds at issuance is \)365,732.
Requirements
1. Prepare an amortization table using the effective interest amortization method for
the first two semiannual interest periods. (Round to the nearest dollar.)
2. Using the amortization table prepared in Requirement 1, journalize issuance of the
bonds and the first two interest payments.
Journalizing liability transactions and reporting them on the balance sheet
The following transactions of Great Value Pharmacies occurred during 2018 and 2019:
2018
Mar. 1 Borrowed \(390,000 from Bartow Bank.The six-year, 13% note requires payments due annually, on March 1. Each payment consists of \)65,000 principal plus one year’s interest.
Dec. 1 Mortgaged the warehouse for \(350,000 cash with Saylor Bank. The mortgagerequires monthly payments of \)7,000. The interest rate on the note is 9% andaccrues monthly. The first payment is due on January 1, 2019.
31 Recorded interest accrued on the Saylor Bank note.
31 Recorded interest accrued on the Bartow Bank note.
2019
Jan. 1 Paid Saylor Bank monthly mortgage payment.
Feb. 1 Paid Saylor Bank monthly mortgage payment.
Mar. 1 Paid Saylor Bank monthly mortgage payment.
1 Paid first installment on note due to Bartow Bank.
Requirements
1. Journalize the transactions in the Great Value Pharmacies general journal. Roundto the nearest dollar. Explanations are not required.
2. Prepare the liabilities section of the balance sheet for Great Value Pharmacies onMarch 1, 2019 after all the journal entries are recorded.
Journalizing bond issuance and interest payments
On January 1, 2018, Roberts Unlimited issues 8%, 20-year bonds payable with a
face value of $240,000. The bonds are issued at 104 and pay interest on June 30 and
December 31.
Requirements
1. Journalize the issuance of the bonds on January 1, 2018.
2. Journalize the semiannual interest payment and amortization of bond premium on
June 30, 2018.
3. Journalize the semiannual interest payment and amortization of bond premium on
December 31, 2018.
4. Journalize the retirement of the bond at maturity, assuming the last interest payment
has already been recorded. (Give the date).
When does a discount on bonds payable occur?
Journalizing bond issuance and interest payments
On June 30, Parker Company issued 11%, five-year bonds payable with a face value
of $120,000. The bonds are issued at face value and pay interest on June 30 and
December 31.
Requirements
1. Journalize the issuance of the bonds on June 30.
2. Journalize the semiannual interest payment on December 31
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