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Chapter 12: Q28E (page 661)

Reporting liabilities

At December 31, MediStat Precision Instruments owes \(52,000 on Accounts

Payable, Salaries Payable of \)12,000, and Income Tax Payable of \(10,000. MediStat

also has \)300,000 of Bonds Payable that were issued at face value that require

payment of a \(35,000 installment next year and the remainder in later years. The

bonds payable require an annual interest payment of \)4,000, and MediStat still

owes this interest for the current year. Report MediStat’s liabilities on its classified

balance sheet on December 31, 2018.

Short Answer

Expert verified

The total liabilities of the company are $378,000.

Step by step solution

01

Definition of current liabilities

The current liabilities are type of the liabilities which become due after the period of the 12 months or operating cycle.

02

Calculation of the total liabilities

Medi Stat Precision

Balance Sheet

At December 31

Current Liabilities:

Accounts Payable

$52,000

Current Portion of bonds Payable

$35,000

Salaries Payable

$12,000

Income Taxes Payable

$10,000

Interest Payable

$4,000

Total Current Liabilities

$113,000

Long Term Liabilities:

Bonds Payable

$265,000

Total Long-term liabilities

$265,000

Total Liabilities

$378,000

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Most popular questions from this chapter

Retiring bonds payable before maturity

CoastalView Magazineissued $600,000 of 15-year, 5% callable bonds payable on July31, 2018, at 94. On July 31, 2021, CoastalViewcalled the bonds at 101. Assume annualinterest payments.

Requirements

1. Without making journal entries, compute the carrying amount of the bonds payableat July 31, 2021.

2. Assume all amortization has been recorded properly. Journalize the retirement ofthe bonds on July 31, 2021. No explanation is required.

Explain each of the key factors that the time value of money depends on.

Describing bonds, journalizing transactions for bonds payable using the straight-line amortization method, and journalizing transactions for a mortgage payable

This problem continues the Canyon Canoe Company situation from Chapter 11. Canyon Canoe Company is considering raising additional capital for further expansion. The company wants to finance a new business venture into guided trips down the Amazon River in South America. Additionally, the company wants to add another building on their land to offer more services for local customers. Canyon Canoe Company plans to raise the capital by issuing \(210,000 of 7.5%, six-year bonds on January 2, 2020. The bonds pay interest semiannually on June 30 and December 31. The company receives \)208,476 when the bonds are issued.

The company also issues a mortgage payable for \(450,000 on January 2, 2020. The proceeds from the mortgage will be used to construct the new building. The mortgage requires annual payments of \)45,000 plus interest for ten years, payable on December 31. The mortgage interest rate is 8%.

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1. Will the bonds issue at face value, a premium, or a discount?

2. Record the following transactions. Include dates and round to the nearest dollar. Omit explanations.

a. Cash received from the bond issue.

b. Cash received from the mortgage payable.

c. Semiannual bond interest payments for 2020. Amortize the premium or discount using the straight-line amortization method.

d. Payment on the mortgage payable for 2020.

3. Calculate the total interest expense incurred in 2020.

Determining bond prices

Bond prices depend on the market rate of interest, stated rate of interest, and time.

Determine whether the following bonds payable will be issued at face value, at a

premium, or at a discount:

a. The market interest rate is 8%. Idaho issues bonds payable with a stated rate

of 7.75%.

b. Austin issued 9% bonds payable when the market interest rate was 8.25%.

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On December 31, 2018, when the market interest rate is 6%, Benson Realty issues

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2. Using the amortization table prepared in Requirement 1, journalize issuance of the

bonds and the first two interest payments.
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