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Chapter 11: Q5SE (page 605)

On January 1, Irving Company purchased equipment of \(280,000 with a long-term note payable. The debt is payable in annual installments of \)56,000 due on December 31 of each year. At the date of purchase, how will Irving Company report the note payable?

Short Answer

Expert verified

Answer

At the time of purchase, $56,000 will be considered as current liability and $224,000 will be considered as long term liability in its balance sheet.

Step by step solution

01

Step-by-step solution

Step 1:Accounting treatment to report the note payable鈥�

Generally, notes payable are long-term but the first installment is due within the 12 months, so first installment should be considered as current liability and rest of the amount be considered as long-term liability.

02

Calculation for long-term liability

Longterm=Purchase-Installments=$280,000-$56,000=$224,000

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Most popular questions from this chapter

Liam Wallace is general manager of Moonwalk Salons. During 2018, Wallace worked for the company all year at a \(13,400 monthly salary. He also earned a year-end bonus equal to 5% of his annual salary.

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Moonwalk incurred payroll tax expense on Wallace for FICA tax. The company also paid state unemployment tax and federal unemployment tax.

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1. Compute Wallace鈥檚 gross pay, payroll deductions, and net pay for the full year 2018. Round all amounts to the nearest dollar.

2. Compute Moonwalk鈥檚 total 2018 payroll tax expense for Wallace.

3. Make the journal entry to record Moonwalk鈥檚 expense for Wallace鈥檚 total earnings for the year, his payroll deductions, and net pay. Debit Salaries Expense and Bonus Expense as appropriate. Credit liability accounts for the payroll deductions and Cash for net pay. An explanation is not required.

4. Make the journal entry to record the accrual of Moonwalk鈥檚 payroll tax expense for Wallace鈥檚 total earnings.

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