Chapter 12: Q16RQ (page 655)
What are the two categories of liabilities reported on the balance sheet? Provide
examples of each.
Liabilities are classified into current and long-term liabilities.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Reporting current and long-term liabilities
Pediatric Dispensary borrowed \(390,000 on January 2, 2018, by issuing a 15% serial
bond payable that must be paid in three equal annual installments plus interest for the
year. The first payment of principal and interest comes due January 2, 2019. Complete
the missing information. Assume the bonds are issued at face value.
December 31
2018 2019 2020
Current Liabilities:
Bonds Payable \) \( \)
Interest Payable
Long-term Liabilities:
Bonds Payable
Computing the debt to equity ratio
Jackson Corporation has the following amounts as of December 31, 2018.
Total assets $ 55,250
Total liabilities 22,750
Total equity 32,500
Compute the debt to equity ratio on December 31, 2018.
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.
Accounting for long-term notes payable transactions
Consider the following note payable transactions of Caleb Video Productions.
2018
Oct. 1 Purchased equipment costing \(80,000 by issuing a five-year, 8% note
payable. The note requires annual principal payments of \)16,000 plus
interest each October 1.
Dec. 31 Accrued interest on the note payable.
2019
Oct. 1 Paid the first installment on the note.
Dec. 31 Accrued interest on the note payable.
Requirements
1. Journalize the transactions for the company.
2. Considering the given transactions only, what are Caleb Video Productions’ total
liabilities on December 31, 2019?
Analyzing and journalizing bond transactions
On January 1, 2018, Nurses Credit Union (NCU) issued 8%, 20-year bonds payablewith face value of $600,000. The bonds pay interest on June 30 and December 31.
Requirements
1. If the market interest rate is 7% when NCU issues its bonds, will the bonds bepriced at face value, at a premium, or at a discount? Explain.
2. If the market interest rate is 9% when NCU issues its bonds, will the bonds bepriced at face value, at a premium, or at a discount? Explain.
3. The issue price of the bonds is 92. Journalize the following bond transactions:
a. Issuance of the bonds on January 1, 2018.
b. Payment of interest and amortization on June 30, 2018.
c. Payment of interest and amortization on December 31, 2018.
d. Retirement of the bond at maturity on December 31, 2037, assuming the lastinterest payment has already beenrecorded.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
