QUESTION 3 (15 marks):On December 31, 2025, Almonte Corporation borrowed $120,000 by signing a 12% note that isto be repaid in 6 annual fixed principal repayments, the first of which is due on December 31,2026.REQUIRED:(a) Prepare a journal entry to record the initial borrowing of the money.(b) Assume that the payments are to consist of accrued interest plus fixed principalpayments. Prepare general journal entries to record the first and second installmentpayments.(c) What amount should be shown as a current liability at December 31, 2026?(d) What amount should be shown as a long-term liability at December 31, 2026?(e) Contrary to the assumption in (b) above, assume now that the note requires blendedinstallment payments of $29,187. Prepare the general journal entry to record the firstinstallment payment.

(c) **Amount to be Shown as a Current Liability at December 31, 2026:**- The current portion of the…

Answered: QUESTION 3 (15 marks): On December 31,…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter9: Long-term Liabilities

Section: Chapter Questions

Problem 92PSA

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On January 1, 2018, King Inc. borrowed $150,000 and signed a 5-year, note payable with a 10% interest rate. Each annual payment is in the amount of $39,569 and payment is due each Dec. 31. What is the journal entry on Jan. 1 to record the cash received and on Dec. 31 to record the annual payment? (You will need to prepare the first row in the amortization table to determine the amounts.)
Everglades Consultants takes out a loan in the amount of $375,000 on April 1. The terms of the loan include a repayment of principal in eight, equal installments, paid annually from the April 1 date. The annual interest rate on the loan is 5%, recognized on December 31. (Round answers to the nearest cent, if needed.) A. Compute the interest recognized as of December 31 in year 1. B. Compute the principal due in year 1.
Short-Term Debt Expected to Be Refinanced On December 31, 2019, Excello Electric Company had 1 million of short-term notes payable due February 7, 2020. Excello expected to refinance these notes on a long-term basis. On January 15, 2020, the company issued bonds with a face value of 900,000 for 882,000. On January 22, 2020, the proceeds from the bond issue plus additional cash held by Excello on December 31, 2019, were used to liquidate the 1 million of short-term notes. The December 31, 2019, balance sheet is issued on February 12, 2020. Required: Prepare a partial balance sheet as of December 31, 2019, showing how the 1 million of short-term notes payable should be disclosed. Include an appropriate footnote for proper disclosure.
Future Values and Long-Term Investments Portman Corporation engaged in the following transactions during 2020: a. On January 1, 2020, Portman deposited $12,000 in a certificate of deposit paying 6% interest compounded semiannually (3% per 6-month period). The certificate will mature on December 31, 2023 b. On January 1, 2020, Portman established an account with Lee County Bank. Portman will make quarterly payments of $2,500 to Lee beginning on March 31, 2020, and ending on December 31, 2021. Lee guarantees an interest rate of 8% compounded quarterly (2% per 3-month period). Required: 1. Prepare the cash flow diagram for each of these two investments. 2. Calculate the amount to which each of these investments will accumulate at maturity. (Note: Round answers to two decimal places.)
Wilbury Corporation issued 1 million of 13.5% bonds for 985,071.68. The bonds are dated and issued October 1, 2019, are due September 30, 2020, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%. Required: 1. Prepare a bond interest expense and discount amortization schedule using the straight-line method. 2. Prepare a bond interest expense and discount amortization schedule using the effective interest method. 3. Prepare adjusting entries for the end of the fiscal year December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. If income before interest and income taxes of 30% in 2020 is 500,000, compute net income under each alternative. 5. Assume the company retired the bonds on June 30, 2020, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight line method of amortization b. effective interest method of amortization 6. Compute the companys times interest earned (pretax operating income divided by interest expense) for 2020 under each alternative.
Note Payable and Accrued Interest Ellsworth Enterprises borrowed $425,000 on an 8%, interest-bearing note on September 30, 2020. Ellsworth ends its fiscal year on December 31. The note was paid with interest on March 31, 2021. Required: 1. Prepare the entry for this note on September 30, 2020. 2. Prepare the adjusting entry for this note on December 31, 2020. 3. Indicate how the note and the accrued interest would appear on the balance sheet at December 31, 2020. 4. Prepare the entry to record the repayment of the note on March 31, 2021.
Short-Term Debt Expected to Be Refinanced On December 31, 2019, Atwood Table Company has 8 million of short-term notes payable owed to City National Bank. On February 1, 2020, Atwood negotiates a revolving credit agreement providing for unrestricted borrowings up to 6 million. Borrowings will bear interest at 1% over the prevailing prime rate, will have stated maturities of 120 days, and will be continuously renewable for 120-day periods for 4 years. Atwood plans to refinance as much as possible of the notes outstanding with the proceeds available from this agreement. Assume that Atwoods December 31, 2019, year-end financial statements are issued on March 30, 2020. Required: Prepare a partial December 31, 2019, balance sheet for Atwood showing how the 8 million short-term debt should be reported. Next Level What is the justification for allowing short-term debt that is expected to be refinanced to be classified as a long-term liability.
Cash Flow Amounts On January 1, 2019, Philip Holding invests 40,000 in an annuity to provide 8 equal semi-annual payments. Interest is 10%, compounded semiannually. Required: Compute the equal semiannual amounts that Philip will receive assuming that the first withdrawal is to be received on: July 1, 2019 January 1, 2019 July 1, 2022 January 1, 2024
Comprehensive Notes Receivable On January 1, 2019, Seaver Company sold land with a book value of 23,000 to Bench Company. Bench paid 15,000 down and signed a 15,000 non-interest-bearing note, payable in two 7,500 annual installments on December 31, 2019, and 2020. Neither the fair value of the land nor of the note is determinable. Benchs incremental borrowing rate is 12%. Later in the year, on July 1, 2019, Seaver sold a building to Hane Company, accepting a 2-year, 100,000 non-interest-bearing note due July 1, 2021. The fair value of the building was 82,644.00 on the date of the sale. The building had been purchased at a cost of 90,000 on January 1, 2014, and had a book value of 67,500 on December 31, 2018. It was being depreciated on a straight-line basis (no residual value) over a 20-year life. Required: 1. Prepare all the journal entries on Seavers books for January 1, 2019, through December 31, 2020, in regard to the Bench note. 2. Prepare all the journal entries on Seavers books for July 1, 2019, through July 1, 2021, in regard to the Hane note. 3. Prepare the notes receivable portion of Seavers balance sheet on December 31, 2019 and 2020.

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