Question 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) $$\begin{array} { | l | r | r | } 
\hline \text { Long-term notes payable } & 2,000 & \
\hline \text { Cash } & & 2,000 \
\hline
\end{array}$$
B) $$\begin{array} { | l | r | r | } 
\hline \text { Current portion of long-term notes payable } & 2,000 & \
\hline \text { Long-term notes payable } & & 2,000 \
\hline
\end{array}$$
C) $$\begin{array} { | l | r | r | } 
\hline \text { Long-term notes payable } & 2,000 & \
\hline \text { Accounts payable } & & 2,000 \
\hline
\end{array}$$
D) $$\begin{array} { | l | r | r | } 
\hline \text { Long-term notes payable } & 2,000 & \
\hline \text { Current portion long-term notes payable } & & 2,000 \
\hline
\end{array}$$

Accepted Answer

The entry reclassifies $2,000 from long-term notes payable to current portion of long-term notes payable, reflecting the amount due within the next year.

Question 2

On July 1,2013,Avery Services issued a long-term note payable for $10,000.It is payable over a 5-year term in $2,000 installments on July 1 of each succeeding year.When the note was issued,the principal amount was recorded in Long-term notes payable and a second entry was made to reclassify the current portion.How will this information be shown on the balance sheet dated December 31,2013?
A) $10,000 shown as current liability only
B) $2,000 shown as current liability; $10,000 shown as long-term liability
C) $2,000 shown as current liability; $8,000 shown as long-term liability
D) The entire $10,000 shown as long-term liability

Accepted Answer

The $2,000 installment due within one year from the balance sheet date will be classified as current liability, while the remaining $8,000 will be shown as a long-term liability. This is because the current portion of the long-term note payable is due within one year, while the remaining portion is due beyond one year. Therefore, option C is the correct answer.

Question 3

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.Each yearly installment will include both principal repayment of $2,000 and interest payment for the preceding one-year period.
-What happens on July 1,2014?
A) Avery pays out $400 of interest only.
B) Avery pays out $400 of interest plus $2,000 of principal.
C) Avery pays out $2,000 of principal only.
D) Avery pays out the $200 of interest that was accrued at year-end.

Accepted Answer

B) Calculations: $10,000 × 4% = $400

Question 4

A mortgage payable is a debt that is backed with a security interest in property.

Accepted Answer

A mortgage payable is a type of loan that is secured by property, meaning that if the borrower defaults on the loan, the lender can take possession of the property in order to recover their losses. This makes it a type of debt that is backed by a security interest in property.

Question 5

Installment payments for mortgages typically contain both an amount for principal repayment and an amount for interest.

Accepted Answer

Installment payments for mortgages typically include both principal and interest payments. The principal payment goes towards paying off the actual amount borrowed, while the interest payment goes towards compensating the lender for lending the money. The ratio of principal to interest in each payment will change over time, with more of the payment going towards principal as the loan is paid down.

Question 6

Installment payments for mortgages are normally paid once per year.

Accepted Answer

Installment payments for mortgages are normally paid monthly or biweekly, not once per year.

Question 7

The current portion of notes payable is the principal amount that will be paid within one year of the balance sheet date.

Accepted Answer

The statement is true. The current portion of notes payable refers to the portion of a long-term debt that is due within the next year and is reported as a current liability on the balance sheet.

Question 8

On November 1,2012,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.
-On November 1,the principal amount was initially recorded as Long-term notes payable,and then a second entry was made to reclassify the current portion.Which of the following is the proper reclassification entry?
A) $$\begin{array} { | l | r | r | } 
\hline \text { Long-term notes payable } & 4,800 & \
\hline \text { Current portion of long-term notes payable } & & 4,800 \
\hline
\end{array}$$
B) $$\begin{array} { | l | r | r | } 
\hline \text { Current portion of long-term notes payable } & 4,800 & \
\hline \text { Accounts payable } & & 4,800 \
\hline
\end{array}$$
C) $$\begin{array} { | l | r | r | } 
\hline \text { Long-term notes payable } & 4,800 & \
\hline \text { Accounts payable } & & 4,800 \
\hline
\end{array}$$
D) $$\begin{array} { | l | r | r | } 
\hline \text { Current portion of long-term notes payable } & 4,800 & \
\hline \text { Long-term notes payable } & & 4,800 \
\hline
\end{array}$$

Accepted Answer

The reclassification entry should debit Long-term notes payable and credit Current portion of long-term notes payable to reflect the portion of the note that is due within the next year.

Question 9

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.Each yearly installment will include both principal repayment of $2,000 and interest payment for the preceding one-year period.
-What happens on December 31,2013 before statements are prepared?
A) Avery must accrue $200 of interest expense.
B) Avery must accrue for the coming $2,000 principal payment.
C) Avery must pay out $200 of interest expense to the note holder.
D) Avery does not need to take any actions.

Accepted Answer

A) Calculations: $10,000 × 4% × 6/12 = $200

Question 10

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 year-end 2013 to accrue interest?
A) $$\begin{array} { | l | r | r | } 
\hline \text { Interest expense } & 200 & \
\hline \text { Cash } & & 200 \
\hline
\end{array}$$
B) $$\begin{array} { | l | r | r | } 
\hline \text { Interest expense } & 200 & \
\hline \text { Interest payable } & & 200 \
\hline
\end{array}$$
C) $$\begin{array} { | l | r | r | } 
\hline \text { Interest expense } & 400 & \
\hline \text { Accounts payable } & & 400 \
\hline
\end{array}$$
D) $$\begin{array} { | l | r | r | } 
\hline \text { Interest revenue } & 400 & \
\hline \text { Cash } & & 400 \
\hline
\end{array}$$

Accepted Answer

The correct entry to accrue interest for the year would involve recognizing the interest expense and the corresponding liability (interest payable). The interest for six months (from July 1 to December 31, 2013) on a $10,000 note at 4% annual interest rate is $200 (\$10,000 * 4% * 6/12 months).

Question 11

When a company accrues interest payable on a long-term note at year-end,the interest payable must be shown as a long-term liability on the balance sheet,along with the long-term note payable balance.

Accepted Answer

Interest payable is a current liability because it is due within the next operating cycle or year, regardless of the term of the associated note payable.

Question 12

On November 1,2012,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.
-On December 31,2013,what will the balance be in the account titled Current portion of long-term notes payable?
A) $400
B) $48,000
C) $43,200
D) $4,800

Accepted Answer

D) Calculations: $48,000 /10 = $4,800

Question 13

On November 1,2012,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 31,2012?
A) $48,000 shown as current liability only
B) $4,800 shown as current liability, $48,000 shown as long-term liability
C) $4,800 shown as current liability, $43,200 shown as long-term liability
D) Entire $48,000 shown as long-term liability

Accepted Answer

The current portion of the note payable, which is the payment due within the next 12 months, is $4,800. This amount should be shown as a current liability on the balance sheet as of December 31, 2012. The remaining balance of the note payable is $43,200 ($48,000 - $4,800), which should be shown as a long-term liability on the balance sheet. Therefore, choice C is correct.

Question 14

When a long-term note payable that requires annual installment payments is initially recorded,it is first recorded as a long-term note payable.Then,at the same date,a second entry is made to reclassify the current portion.

Accepted Answer

This is true. The initial recording of a long-term note payable will be as a long-term liability on the balance sheet. However, because the installment payments are due within a year, a portion of the liability will need to be reclassified as a current liability on the balance sheet in order to accurately reflect the company's short-term obligations. This is typically done through a separate journal entry.

Question 15

When a long-term note payable is issued,the entire amount should be initially recorded as a long-term note payable.

Accepted Answer

When a long-term note payable is issued, the entire amount should be recorded as a long-term note payable initially. This means that the full amount of the note should be recorded as a liability on the balance sheet at the time it is issued, even if only a portion of the funds have been received. As payments are made and interest is accrued, the balance of the note will decrease, but it will remain classified as a long-term liability until it is fully repaid.

Question 16

The difference between a mortgage payable and a note payable is that notes payable are always long-term.

Accepted Answer

Notes payable can be either short or long-term, while mortgage payable specifically refers to a long-term loan secured by real estate.

Question 17

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.Each yearly installment will include both principal repayment of $2,000 and interest payment for the preceding one-year period.On July 1,2014,after the first installment payment is made,Avery will have to reclassify an additional $2,000 from long-term notes payable to the current portion of long-term notes payable.

Accepted Answer

The answer of On July 1,2013,Avery Services issued a 4%...

Question 18

On November 1,2012,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 31,2012 for the period of November 1 through year-end?
A) $1,200
B) $2,400
C) $400
D) $200

Accepted Answer

C) Calculations: $48,000 × 5% × 2/12 = $400

Question 19

On November 1,2012,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.
-Which of the following journal entries would be needed at December 31,2012 to accrue interest from November 1 through year-end?
A) $$\begin{array} { | l | r | r | } 
\hline \text { Interest expense } & 400 & \
\hline \text { Cash } & & 400 \
\hline
\end{array}$$
B) $$\begin{array} { | l | r | r | } 
\hline \text { Interest expense } & 400 & \
\hline \text { Interest payable } & & 400 \
\hline
\end{array}$$
C) $$\begin{array} { | l | r | r | } 
\hline \text { Interest expense } & 400 & \
\hline \text { Accounts payable } & & 400 \
\hline
\end{array}$$
D) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 400 & \
\hline \text { Interest expense } & & 400 \
\hline
\end{array}$$

Accepted Answer

The correct journal entry to accrue interest for the period from November 1 through December 31, 2012, involves debiting Interest Expense and crediting Interest Payable, reflecting the incurred but not yet paid interest expense.

Question 20

The current portion of notes payable must be reported on the balance sheet combined with the long-term portion under long-term liabilities.

Accepted Answer

The current portion of notes payable should be reported separately under current liabilities, while the long-term portion is reported under long-term liabilities on the balance sheet.

Quiz 11: Long-Term Liabilities, bonds Payable, and Classification of Liabilities on the Balance Sheet

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 mortgage payable is a debt that is backed with a security interest in property.

Installment payments for mortgages typically contain both an amount for principal repayment and an amount for interest.

Installment payments for mortgages are normally paid once per year.

The current portion of notes payable is the principal amount that will be paid within one year of the balance sheet date.

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 year-end 2013 to accrue interest?

When a company accrues interest payable on a long-term note at year-end,the interest payable must be shown as a long-term liability on the balance sheet,along with the long-term note payable balance.

On November 1,2012,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. -On December 31,2013,what will the balance be in the account titled Current portion of long-term notes payable?

On November 1,2012,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 31,2012?

When a long-term note payable that requires annual installment payments is initially recorded,it is first recorded as a long-term note payable.Then,at the same date,a second entry is made to reclassify the current portion.

When a long-term note payable is issued,the entire amount should be initially recorded as a long-term note payable.

The difference between a mortgage payable and a note payable is that notes payable are always long-term.

On November 1,2012,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 31,2012 for the period of November 1 through year-end?

On November 1,2012,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. -Which of the following journal entries would be needed at December 31,2012 to accrue interest from November 1 through year-end?

The current portion of notes payable must be reported on the balance sheet combined with the long-term portion under long-term liabilities.