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Chapter 12: 1RQ (page 654)
Where is the current portion of notes payable reported on the balance sheet?
The current portion of the notes payable means the portion which becomes due within 12 months.
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What does the debt to equity ratio show, and how is it calculated?
Analyzing, journalizing, and reporting bond transactions
Danny鈥檚 Hamburgers issued 6%, 10-year bonds payable at 90 on December 31, 2018.
At December 31, 2020, Danny reported the bonds payable as follows:
Long-term Liabilities:
Bonds Payable \( 600,000
Less: Discount on Bonds Payable (48,000) \) 552,000
Danny鈥檚 pays semiannual interest each June 30 and December 31.
Requirements
1. Answer the following questions about Danny鈥檚 bonds payable:
a. What is the maturity value of the bonds?
b. What is the carrying amount of the bonds at December 31, 2020?
c. What is the semiannual cash interest payment on the bonds?
d. How much interest expense should the company record each year?
2. Record the June 30, 2020, semiannual interest payment and amortization of
discount.
Determining the present value of bonds payable
Interest rates determine the present value of future amounts. (Round to the nearest
dollar.)
Requirements
1. Determine the present value of 10-year bonds payable with face value of $86,000
and stated interest rate of 14%, paid semiannually. The market rate of interest is
14% at issuance.
2. Same bonds payable as in Requirement 1, but the market interest rate is 16%.
3. Same bonds payable as in Requirement 1, but the market interest rate is 12%.
Herrera Corporation issued a $400,000, 4.5%, 10-year bond payable on January 1, 2018. Journalize the payment of the bond
payable at maturity. (Give the date.)
Using the effective-interest amortization method
On December 31, 2018, when the market interest rate is 8%, Biggs Realty issues
\(450,000 of 5.25%, 10-year bonds payable. The bonds pay interest semiannually. The
present value of the bonds at issuance is \)365,732.
Requirements
1. Prepare an amortization table using the effective interest amortization method for
the first two semiannual interest periods. (Round to the nearest dollar.)
2. Using the amortization table prepared in Requirement 1, journalize issuance of the
bonds and the first two interest payments.
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