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Chapter 11: 6RQ (page 603)

Coltrane Company has a \(5,000 note payable that is paid in \)1,000 instalments over five years. How would the portion that must be paid within the next year be reported on the balance sheet?

Short Answer

Expert verified

The current portion of notes payable would be shown under the current liability in the balance sheet.

Step by step solution

01

Current portion of long-term liability

Long-term liability is the obligation that is payable for more than a year says 5 years or 10 years. But as soon as a portion of the obligation is paid off, long-term liability gradually reduces. That portion that is paid in the current year is called the current portion of long-term liability.

02

Treatment of the current portion of notes payable in the given case

The note payable is a long-term liability. In the given case long-term liability amounts to $5,000. But this liability is paid off in the annual installment of $1,000.

So next year $1,000 would be payable. This $1,000 would be the current portion of notes payable for next year. As the current portion would be payable only in that year it would be treated as a current liability.

In the given case, this current portion in the balance sheet would be reported under the current liability section, and notes payable would be shown with the reduced balance under long term liability.

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Most popular questions from this chapter

When do businesses record warranty expenses, and why?

The general ledger of Prompt Ship at June 30, 2018, the end of the company鈥檚 fiscal year, includes the following account balances before payroll and adjusting entries.

Accounts Payable \( 118,000

Interest Payable 0

Salaries Payable 0

Employee Income Taxes Payable 0

FICA鈥擮ASDI Taxes Payable 0

FICA鈥擬edicare Taxes Payable 0

Federal Unemployment Taxes Payable 0

State Unemployment Taxes Payable 0

Unearned Rent Revenue 5,400

Long-term Notes Payable 198,000

The additional data needed to develop the payroll and adjusting entries at June 30 are as follows:

a. The long-term debt is payable in annual installments of \)39,600, with the next installment due on July 31. On that date, Prompt Ship will also pay one year鈥檚 interest at 10%. Interest was paid on July 31 of the preceding year. Make the adjusting entry to accrue interest expense at year-end.

b. Gross unpaid salaries for the last payroll of the fiscal year were \(4,800. Assume that employee income taxes withheld are \)920 and that all earnings are subject to OASDI.

c. Record the associated employer taxes payable for the last payroll of the fiscal year, \(4,800. Assume that the earnings are not subject to unemployment compensation taxes

d. On February 1, the company collected one year鈥檚 rent of \)5,400 in advance.

Requirements

1. Using T-accounts, open the listed accounts and insert the unadjusted June 30 balances.

2. Journalize and post the June 30 payroll and adjusting entries to the accounts that you opened. Identify each adjusting entry by letter. Round to the nearest dollar.

3. Prepare the current liabilities section of the balance sheet at June 30, 2018.

Erin O鈥橬eil Associates reported short-term notes payable and salaries payable as follows:

2018

2017

Current Liabilities鈥攑artial:

Short-term Notes Payable

\(16,900

\) 16,000

Salaries Payable

3,400

4,000

During 2018, O鈥橬eil paid off both current liabilities that were left over from 2017, borrowed cash on short-term notes payable, and accrued salaries expense. Journalize all four of these transactions for O鈥橬eil during 2018. Assume no interest on short-term notes payable of $16,000.

The following financial information was obtained from the year ended 2018 income statements for Cash Automotive and Pennington Automotive:

Cash Pennington

Net income \( 26,070 \) 74,188

Income tax expense 9,270 27,080

Interest expense 300 2,900

Requirements

1. Compute the times-interest-earned ratio for each company. Round to two decimals.

2. Which company was better able to cover its interest expense?

Golden Bear Construction operates throughout California. The owner, Gaylan Beavers, employs 15 work crews. Construction supervisors report directly to Beavers, and the supervisors are trusted employees. The home office staff consists of an accountant and an office manager.

Because employee turnover is high in the construction industry, supervisors hire and fire their own crews. Supervisors notify the office of all personnel changes. Also, supervisors forward the employee W-4 forms to the home office. Each Thursday, the supervisors submit weekly time sheets for their crews, and the accountant prepares the payroll. At noon on Friday, the supervisors come to the office to get paychecks for distribution to the workers at 5 p.m.

The company accountant prepares the payroll, including the paychecks. Beavers signs all paychecks. To verify that each construction worker is a bona fide employee, the accountant matches the employee鈥檚 endorsement signature on the back of the canceled paycheck with the signature on that employee鈥檚 W-4 form.

Requirements

  1. Identify one way that a supervisor can defraud Golden Bear Construction under the present system.

Discuss a control feature that the company can use to safeguard against the fraud you identified in Requirement 1.
See all solutions

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