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Exam 7: Accounting for Liabilities

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Question 111

Multiple Choice

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The Gordon Corporation issued $70,000 of 6%, 5-year bonds on January 1, Year 1 at 98. The interest payments are due on December 31 each year. Gordon uses the straight-line method of amortization.Which of the following answers shows the effect of the bond issuance on the financial statements?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

E) A) and B)
F) All of the above

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Question 112

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On January 1, Year 1, Daniels Company issued bonds with a face value of $500,000, receiving $496,000 cash. These bonds were issued at a discount.

A) True
B) False

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Question 113

Multiple Choice

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Which of the following items would typically appear in the current liabilities section of a classified balance sheet?

Currie Company borrowed $26,000 from the Sierra Bank by issuing a 11% three-year note. Currie agreed to repay the principal and interest by making annual payments in the amount of $10,640. Based on this information, the amount of the interest expense associated with the second payment would be: (Round your answer to the nearest dollar.)

Indicate how each event affects the horizontal financial statements model. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = I Decrease = D Not Affected = NAOn April 1, Year 2, Jenkins Company repaid a $20,000, one-year, 6% note and interest to Community Bank. Interest on the note had been accrued on December 31, Year 1. Record the financial statement effects for Jenkins Company in Year 2.

On January 1, Year 1, Mayberry Company borrowed cash from Central Bank by issuing a $75,000 face value 3-year installment note payable that carried a 9% interest rate. The note is to be repaid by making annual cash payments of $29,629.11, which includes both principal and interest. The payments are to be made on December 31 of each year. Required:Prepare an amortization schedule for the term of the loan, showing the amounts to be paid on principal and interest for Year 1, Year 2, and Year 3, and the loan balance at the end of each of those years.What amount of interest expense will be shown on the Year 2 income statement?What amount of liability for the note will be shown on the balance sheet as of December 31, Year 2?

When bonds are issued at a premium, which will be higher each year, the interest expense or the interest payment amount?

On January 1, Year 1, The Hanover Corporation issued $70,500 of 8%, 5-year bonds at 97. Hanover uses the straight-line method of bond discount amortization. The interest payments are due on December 31 each year. How much interest expense will Hanover report on its income statement on December 31, Year 1?