Q27E - Horngren'S Financial And Managerial Accounting

Question

Reporting current and long-term liabilities

Pediatric Dispensary borrowed \(390,000 on January 2, 2018, by issuing a 15% serial

bond payable that must be paid in three equal annual installments plus interest for the

year. The first payment of principal and interest comes due January 2, 2019. Complete

the missing information. Assume the bonds are issued at face value.

December 31

2018 2019 2020

Current Liabilities:

Bonds Payable \) \( \)

Interest Payable

Long-term Liabilities:

Bonds Payable

Step-by-Step Solution

Answer

The amount of interest payable in 2020 is $19,500.

Step 1: Definition of current liabilities

The current liabilities are those liabilities that become due within 12 months.

Step 2: Reporting of current and long-term liabilities

	2018	2019	2020
Current Liabilities:
Bonds Payable	$130,000	$130,000	$130,000
Interest Payable	$58,500	$39,000	$19,500
Long-term Liabilities:
Bonds Payable	$260,000	$130,000	-

Working Notes:

	2018	2019	2020
Current Liabilities:
Bonds Payable	$390,000/3	$390,000/3	$390,000/3
Interest Payable	$390,000*15%	$260,000*15%	$130,000*15%
Long-term Liabilities:
Bonds Payable	$390,000- $130,000	$260,000- $130,000	$130,000- $130,000