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Chapter 14: Q20E (page 758)

(Long-Term Debt Disclosure) At December 31, 2017, Redmond Company has outstanding three long-term debt issues. The first is a \(2,000,000 note payable which matures June 30, 2020. The second is a \)6,000,000 bond issue that matures September 30, 2021. The third is a \(12,500,000 sinking fund debenture with annual sinking fund payments of \)2,500,000 in each of the years 2019 through 2023.

Instructions

Prepare the required note disclosure for the long-term debt at December 31, 2017.

Short Answer

Expert verified

On 31 December 2017, notes disclosure for the long-term debt will be as follows:

Requirements for maturities and sinking funds:

Year

Amount $

2018

$0

2019

$2,500,000

2020

$4,500,000 ($2,000,000+$2,500,000)

2021

$8,500,000 ($6,000,000+$2,500,000)

2022

$2,500,000

Step by step solution

01

Definition of Notes to Financial Statement

The information presented at the bottom of the financial statement that provides additional information regarding the assumptions made by the accountant is known as notes to the financial statement.

02

Notes disclosure for long-term debt

(a) $2,500,000 is added to each year鈥檚 disclosure because it is an annual payment for sinking funds.

(b) $2,000,000 is added in 2020 because the note payable will mature on 30 June 2020.

(c) $6,000,000 is added in 2021 because the bond payable will mature on 30 September 2021.

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Most popular questions from this chapter

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What is off-balance sheet financing? Why might a company be interested in using off-balance sheet financing?

(Comprehensive Problem: Issuance, Classification, Reporting) The following are four independent situations.

(a) On March 1, 2018, Wilke Co. issued at 103 plus accrued interest \(4,000,000, 9% bonds. The bonds are dated January 1, 2018, and pay interest semiannually on July 1 and January 1. In addition, Wilke Co. incurred \)27,000 of bond issuance costs. Compute the net amount of cash received by Wilke Co. as a result of the issuance of these bonds.

(b) On January 1, 2017, Langley Co. issued 9% bonds with a face value of \(700,000 for \)656,992 to yield 10%. The bonds are dated January 1, 2017, and pay interest annually. What amount is reported for interest expense in 2017 related to these bonds, assuming that Langley used the effective-interest method for amortizing bond premium and discount?

(c) Tweedie Building Co. has a number of long-term bonds outstanding at December 31, 2017. These long-term bonds have the following sinking fund requirements and maturities for the next 6 years.

Sinking Fund

Maturities

2018

\(300,000

\)100,000

2019

100,000

250,000

2020

100,000

100,000

2021

200,000

-

2022

200,000

150,000

2023

200,000

100,000

Indicate how this information should be reported in the financial statements at December 31, 2017.

(d) In the long-term debt structure of Beckford Inc., the following three bonds were reported: mortgage bonds payable \(10,000,000; collateral trust bonds \)5,000,000; bonds maturing in installments, secured by plant equipment $4,000,000. Determine the total amount, if any, of debenture bonds outstanding

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鈥檚 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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