Question

Discussion questions for "Chapter 1 1) On July 1, 2013, Avery Services issued a 4% long-term note payable for $10,000. It is payable over a 5-year term in $2,000 principal installments on July 1 of each year. Which of the following entries needs to be made at July 1, 2013 to reclassify the current portion of the note? A) Long-term notes payable 2,000 Cash 2,000 B) Current portion of long-term notes payable 2,000 Long-term notes payable 2,000 C) Long-term notes payable 2,000 Accounts payable 2,000 D) Long-term notes payable 2,000 Current portion of long-term notes payable 2,000 How do you compute that? 2) On November 1, 2014, EZ Products borrowed $48,000 on a 5%, 10-year note with annual installment payments of $4,800 plus interest due on November 1 of each succeeding year. How much interest expense should be accrued at December 31, 2014 for the period of November 1 through year-end? A) $1,200 B) $2.400 C) 5400 D) $200 How do you calculate that? 3) on November 1, 2014, EZ Products borrowed $48.000 on a 5, 10-year note with annual installment payments of $4,800 plus interest due on November 1 of each succeeding year. How will the note be shown on the balance sheet dated December 31, 20147 C A) $45.000 shown as current liability only B) 54.800 shown as current liability: $48.000 shown as long-term ability 54.800 shown as current liability 543,200 shown as long-term buty D) The entire 548.000 shown as long-termauity Company bus building on a plot of land for $100.000 paring 120.000 am and 20

Answer 1

1. Answer Is 'B' option.

As it is a Long term debt it should be recorded as liability.

2. Answer is 'C' Option.

Explaination :- 48000 * 5/100 * 2/12 = $400

Interest for Two months will be $ 400 only

3. Answer is 'D' Option.

As the tenure of loan is of ten years it would be treated as long term liability.

4. Answer is 'D' Option.

Explaination :- ( 80000 ) * 6 % * (1month / 12months) = $ 400

5. Answer is 'C' Option.

Explaination :- As the loan is taken for the tenure of 20 years at 6 %. Interest for first months would be -

( 80000 ) * 6 % * (1month / 12months) = $ 400

Hence, Payment made of First installmet = Principal Amount in first installment+ Interest

$ 570 = Principal Amount in first installment + $ 400

Therefore, Principal Amount in first installmet = $ 570 - $ 400

= $ 170

So, Balance Principal Amount after making First payment = $ 80000 - $ 170

= $ 79830 /-

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