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Chapter 12: Q32PGA_2 (page 663)

Journalizing liability transactions and reporting them on the balance

sheet

The following transactions of Johnson Pharmacies occurred during 2018 and 2019:

2018

Mar. 1 Borrowed \(450,000 from Coconut Creek Bank. The 15-year, 5% note requires

payments due annually, on March 1. Each payment consists of \)30,000 principal

plus one year’s interest.

Dec. 1 Mortgaged the warehouse for \(250,000 cash with Saputo Bank. The mortgage

requires monthly payments of \)8,000. The interest rate on the note is 12% and

accrues monthly. The first payment is due on January 1, 2019.

31 Recorded interest accrued on the Saputo Bank note.

31 Recorded interest accrued on the Coconut Creek Bank note.

2019

Jan. 1 Paid Saputo Bank monthly mortgage payment.

Feb. 1 Paid Saputo Bank monthly mortgage payment.

Mar. 1 Paid Saputo Bank monthly mortgage payment.

1 Paid first installment on note due to Coconut Creek Bank.

Requirements

1. Journalize the transactions in the Johnson Pharmacies general journal. Round to

the nearest dollar. Explanations are not required.

2. Prepare the liabilities section of the balance sheet for Johnson Pharmacies on

March 1, 2019 after all the journal entries are recorded.

Short Answer

Expert verified

The total of the liabilities side of the balance sheet is $653,334.

Step by step solution

01

Definition of the interest payable

The interest payable is the amount of which is payable at the end of the company to other parities. It is shown under the liabilities section of balance sheet.

02

Journal entries

Johnson Pharmacies

Balance Sheet

On March 1, 2019

Current Liabilities:

Current Portion of Notes Payable

$30,000

Current Portion of Mortgage Payable

$71,867

Total Current Liabilities

$101,867

Long-Term liabilities:

Notes Payable

$390,000

Mortgage Payable

$161,467

Total Long-term Liabilities

$551,467

Total Liabilities

$653,334

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Most popular questions from this chapter

Determining the present value of bonds payable and journalizing using the effective-interest amortization method

Sleep Well, Inc. is authorized to issue 9%, 10-year bonds payable. On January 1, 2018, when the market interest rate is 10%, the company issues $500,000 of the bonds. The bonds pay interest semiannually.

Requirements

1. How much cash did the company receive upon issuance of the bonds payable? (Round to the nearest dollar.)

2. Prepare an amortization table for the bond using the effective-interest method, through the first two interest payments. (Round to the nearest dollar.)

3. Journalize the issuance of the bonds on January 1, 2018, and the first and second payment of the semiannual interest amount and amortization of the bonds on June 30, 2018, and December 31, 2018. Explanations are not required.

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%.

Retiring bonds payable before maturity

CoastalView Magazineissued $600,000 of 15-year, 5% callable bonds payable on July

31, 2018, at 94. On July 31, 2021, CoastalViewcalled the bonds at 101. Assume annual

interest payments.

Requirements

1. Without making journal entries, compute the carrying amount of the bonds payable

at July 31, 2021.

2. Assume all amortization has been recorded properly. Journalize the retirement of

the bonds on July 31, 2021. No explanation is required.

Determining bond prices and interest expense

Jones Company is planning to issue $490,000 of 9%, five-year bonds payable to

borrow for a major expansion. The owner, Shane Jones, asks your advice on some

related matters.

Requirements

1. Answer the following questions:

a. At what type of bond price Jones Company will have total interest expense

equal to the cash interest payments?

b. Under which type of bond price will Jones Company’s total interest expense be

greater than the cash interest payments?

c. If the market interest rate is 12%, what type of bond price can Jones Company

expect for the bonds?

2. Compute the price of the bonds if the bonds are issued at 89.

3. How much will Jones Company pay in interest each year? How much will Jones

Company’s interest expense be for the first year?

Analyzing and journalizing bond transactions

On January 1, 2018, Nurses Credit Union (NCU) issued 8%, 20-year bonds payablewith face value of $600,000. The bonds pay interest on June 30 and December 31.

Requirements

1. If the market interest rate is 7% when NCU issues its bonds, will the bonds bepriced at face value, at a premium, or at a discount? Explain.

2. If the market interest rate is 9% when NCU issues its bonds, will the bonds bepriced at face value, at a premium, or at a discount? Explain.

3. The issue price of the bonds is 92. Journalize the following bond transactions:

a. Issuance of the bonds on January 1, 2018.

b. Payment of interest and amortization on June 30, 2018.

c. Payment of interest and amortization on December 31, 2018.

d. Retirement of the bond at maturity on December 31, 2037, assuming the lastinterest payment has already beenrecorded.
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