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Chapter 14: 22Q (page 753)

What disclosures are required relative to long-term debt and sinking fund requirements?

Short Answer

Expert verified

The disclosures required in relation to long-term obligations and sinking fund requirements include maturity value and future disbursements.

Step by step solution

01

Meaning of long-term debt

Long-term debts refer to the obligations which are to be met by the business enterprise after a comparatively long period of time, that is, usually one year. Such debt does not become due for payment in the ordinary course of business operation or within one year.

02

Disclosures required relative to long-term debt and sinking fund requirements

The disclosures needed onthe date of the balance sheet comprise future disbursements for sinking requirements and the maturity value of long-term debt at the intervalof every five years.

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Most popular questions from this chapter

On January 1, Martinez Inc. issued \(3,000,000, 11% bonds for \)3,195,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Martinez uses the effective-interest method of amortizing bond premium. At the end of the first year, Martinez should report bonds payable of:

(a) \(3,185,130. (c) \)3,173,550.

(b) \(3,184,500. (d) \)3,165,000.

Teton Corporation issued \(600,000 of 7% bonds on November 1, 2017, for \)644,636. The bonds were dated November 1, 2017, and mature in 10 years, with interest payable each May 1 and November 1. Teton uses the effective-interest method with an effective rate of 6%. Prepare Teton’s December 31, 2017, adjusting entry.

On January 1, 2017, Ellen Carter Company makes the two following acquisitions.

  1. Purchases land having a fair value of \(200,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of \)337,012.
  2. Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of $250,000 (interest payable annually).

The company has to pay 11% interest for funds from its bank

Instructions

(Round answers to the nearest cent.)

  1. Record the two journal entries that should be recorded by Ellen Carter Company for the two purchases on January 1, 2017.
  2. Record the interest at the end of the first year on both notes using the effective-interest method.

E14-3 (L01) (Entries for Bond Transactions) Presented below are two independent situations.

1. On January 1, 2017, Simon Company issued \(200,000 of 9%, 10-year bonds at par. Interest is payable quarterly on April 1, July 1, October 1, andJanuary 1.

2. On June 1, 2017, Garfunkel Company issued \)100,000 of 12%, 10-year bonds dated January 1 at par plus accrued interest. Interest is payable semi-annually on July 1 and January 1.

Instructions

For each of these two independent situations, prepare journal entries to record the following.

(a) The issuance of the bonds.

(b) The payment of interest on July 1.

(c) The accrual of interest on December 31.

Devers Corporation issued $400,000 of 6% bonds on May 1, 2017. The bonds were dated January 1, 2017, and mature January 1, 2020, with interest payable July 1 and January 1. The bonds were issued at face value plus accrued interest. Prepare Devers’s journal entries for (a) the May 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.
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