Long-Term Liabilities

On May 1, 2019, Herron Corp. issued $600,000, 9%, 5-year bonds at face value. The bonds were dated May 1, 2019, and pay interest annually on May 1. Financial statements are prepared annually on December 31

Instructions

  1. Prepare the journal entry to record the issuance of the bonds.
  2. Prepare the adjusting entry to record the accrual of interest on December 31, 2019.
  3. Show the balance sheet presentation on December 31, 2019.
  4. Prepare the journal entry to record payment of interest on May 1, 2020.
  5. Prepare the adjusting entry to record the accrual of interest on December 31, 2020.
  6. Assume that on January 1, 2021, Herron pays the accrual bond interest and calls the bonds. The call price is 102. Record the payment of interest and redemption of the bonds

Kershaw Electric sold $6,000,000, 10%, 10-year bonds on January 1, 2019. The bonds were dated January 1, 2019, and paid interest on January 1. The bonds were sold at 98.

Instructions

  1. Prepare the journal entry to record the issuance of the bonds on January 1, 2019.
  2. At December 31, 2019, $8,000 of the Discount on Bonds Payable account has been amortized. Show the balance sheet presentation of the long-term liability at December 31, 2019. .
  3. On January 1, 2021, when the carrying value of the bonds was $5,904,000, the company redeemed the bonds at 102. Record the redemption of the bonds assuming that interest for the period has already been paid.

The following section is taken from Mareska's balance sheet at December 31, 2019.

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Talkington Electronics issues a $400,000, 8%, 15-year mortgage not on December 31, 2018. The proceeds from the note are to be used in financing a new research laboratory. The terms of the note provide for annual installment payments, exclusive of real estate taxes and insurance, of $59,612. Payments are due on December 31.

Instructions

  1. Prepare an installment payments schedule for the first 4 years.
  2. Prepare the entries for (1) the loan and (2) the first installment payment.
  3. Show how the total mortgage liability should be reported on the balance sheet at December 31, 2019.

Presented below are three different lease transactions that occurred for Ruggiero Inc. in 2019. Assume that all lease contracts start on January 1, 2019. In no case does Ruggiero receive title to the properties leased during or at the end of the lease term.

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Paris Electric sold $3,000,000, 10%, 10-year bonds on January 1, 2019. The bonds were dated January 1 and pay interest annually on January 1. Paris Electric uses the straight-line method to amortize bond premium or discount. The bonds were sold at 104.

Instructions

  1. Prepare the journal entry to record the issuance of the bonds on January 1, 2019.
  2. Prepare a bond premium amortization schedule for the first 4 interest periods.
  3. Prepare the journal entries for interest and the amortization for the premium in 2019 and 2020.
  4. Show the balance sheet presentation of the bond liability at December 31, 2020.

Saberhagen Company sold $3,500,000, 8%, 10-year bonds on January 2019. The bonds were dated January 1, 2019 and pay interest annually on January Saberhagen Company uses the straight-line method to amortize bonds premium or discount.

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The following is taken from the Colaw Company balance sheet.

Interest is payable annually on January 1. The bonds are callable on any annual interest date. Colaw uses straight-line amortization for any bond premium or discount. From December 31, 2019, the bonds will be outstanding for an additional 10 years (120 months).

Instructions

  1. Journalize the payment of bond interest on January 1, 2020.
  2. Prepare the entry to amortize bond premium and to accrue the interest due on December 31, 2020.
  3. Assume that on January 1, 021, after paying interest, Colaw Company calls bonds having a face value of $1,200,000. the call price is 101. Record the redemption of the bonds.
  4. Prepare the adjusting entry at December 31, 2021, to amortize bond premium and to accrue interest on the remaining bonds.

On January 1, 2019, Lock Corporation issued $1,800,000 face value, 5%, 10-year bonds at $1,667,518. This price reslted in an effective-interest rate of 6% on the bonds. Lock uses the efective-interest method to amortize bond premium or discount. The bonds pay annual interest January 1.

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On January 1, 2019, Jade Company issued $2,000,000 face value, 7%, 10-year bonds at $2,147,202. This price resulted in a 6% effective-interest rate on the bonds. Jade uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest on each January 1.

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