Question 1

The debenture carrying amount is the balance in the debenture payable account subtracted from or added to the balance in either the discount or premium account.

Accepted Answer

This statement is true. The carrying amount of a debenture is calculated by taking the balance in the debenture payable account and adjusting it by the balance in the discount or premium account, depending on whether the debenture was issued at a discount or premium.

Question 2

The Amazing Widget Company issues $508,000 of 8%,10-year debentures at 105 on 30 April 2017.The debentures pay interest on 30 April and 31 October.Assume that the company uses the straight-line method for amortisation.Calculate the net balance that will be reported for the debentures on the balance sheet on 31 October 2017.

Accepted Answer

The answer of The Amazing Widget Company issues $508,000 of...

Question 3

The current portion of notes payable would normally be shown on the balance sheet in non-current liabilities.

Accepted Answer

The current portion of notes payable is a short-term liability and would typically be shown in current liabilities on the balance sheet, not in non-current liabilities.

Question 4

Balances for debentures payable on the balance sheet will show the balances minus any discount or plus any premium.

Accepted Answer

Balances for debentures payable on the balance sheet will show the balances reduced by any discount or increased by any premium, resulting in the net carrying amount of the debentures. This net carrying amount is the amount that the company is actually liable to repay to the debenture holders at maturity.

Question 5

On 1 January 2017,Finch Company issued $75,000 of five year debentures with a stated rate of 8%.The market rate at time of issue was 12%,so the debentures were discounted and sold for $74,401.Finch uses the effective-interest method of amortisation for debenture discount.Half-yearly interest payments are made on 30 June and 31 December of each year.Which of the following is the correct journal entry to record the first interest payment? (Round all amounts to the nearest dollar. )

Accepted Answer

The effective-interest method of amortisation allocates the discount over the life of the debentures. The interest expense for the first six months is $464 ($74,401 x 8% x 6/12). The discount amortised for the first six months is $1464 ($75,000 - $74,401 x 12/6).

Question 6

The current portion of mortgages payable would normally be shown on the balance sheet in current liabilities.

Accepted Answer

The current portion of mortgages payable refers to the amount of the mortgage that is due within the next 12 months and is therefore classified as a current liability on the balance sheet.

Question 7

The time value of money is related to which of the following concepts?

Accepted Answer

The time value of money refers to the fact that money earns interest over time and grows in value. This means that money invested today will be worth more in the future due to the earning of interest. Option A and B are incorrect because they refer to the loss of value of money over time, while option D is unrelated to the concept of time value of money.

Question 8

Interest payable would normally be shown on the balance sheet in current liabilities.

Accepted Answer

Interest payable is a current liability, as it is an obligation to pay interest on outstanding debts within the current accounting period. It would therefore be shown on the balance sheet in the current liabilities section.

Question 9

Cases Company issues $802,000 of 8%,10-year debentures on 31 March 2017.The debentures pay interest on 31 March and 30 September.Which of the following statements is true?

Accepted Answer

Since the stated interest rate of 8% is lower than the market rate of 9%, the debentures will be less attractive to investors and will therefore have to be issued at a discount to compensate them for the lower return. This means that the debentures will be sold for less than their face (or par) value of $802,000.

Question 10

GST clearing would normally be shown on the balance sheet in non-current liabilities.

Accepted Answer

GST clearing is typically shown as a current liability on the balance sheet, as it represents taxes payable in the short term.

Question 11

On 1 January 2017,Zing Services issued $167,000 of six year debentures with a stated rate of 12%.The market rate at time of issue was 11%,so the debentures were issued with a premium and sold for $191,110.Zing uses the effective-interest method to amortise debentures premium.Half-yearly interest payments are made on 30 June and 31 December of each year.How much Interest expense will be recorded when the first interest payment is made? (Round to the nearest dollar. )

Accepted Answer

The interest expense is calculated using the market rate at issuance. The first interest expense is $191,110 (carrying amount) * 11% (market rate) / 2 = $10,511.

Question 12

Discount on debentures payable is considered to be additional interest expense of the company that issues the debenture.

Accepted Answer

Discount on debentures payable represents the difference between the face value of the debenture and the amount of cash the company received when issuing the debenture. This discount is amortized over the life of the debenture and is considered to be an additional interest expense for the company issuing the debenture.

Question 13

The balance in the Debentures payable account is a credit of $50 000.The balance in the Discount on debentures payable account is a debit of $1 500.The debenture carrying amount is $51 500.

Accepted Answer

The debenture carrying amount should be the face value of the debentures minus the discount on debentures payable. 
Debenture carrying amount = Face value - Discount on debentures payable
Debenture carrying amount = Face value - (-$1,500)  (since the discount account has a debit balance)
Debenture carrying amount = Face value + $1,500
If the debenture carrying amount is $51,500 and the discount on debentures payable is $1,500, then the face value of the debentures must be $50,000.
However, the question states that the balance in the Debentures payable account is a credit of $50,000, which suggests that the face value of the debentures is actually $50,000 and not $51,500. Therefore, the statement is false.

Question 14

The balance in the Debentures payable account is a credit of $50 000.The balance in the Discount on debentures payable is a debit of $1 500.The balance sheet will report the debenture balance as $48 500.

Accepted Answer

The debentures payable account is reported at its full face value, which in this case is $50,000. The discount on debentures payable is a contra account and reduces the value of the debentures payable to its net amount. Therefore, the balance sheet will report the debenture balance as $50,000 - $1,500 = $48,500.

Question 15

If a company issues a debenture in-between interest payments,the company can pay a prorated portion of the interest payment on the regular payment date.

Accepted Answer

The answer of If a company issues a debenture in-between...

Question 16

Premium on debentures payable is considered to be additional interest expense of the company that issues the debenture.

Accepted Answer

Premium on debentures payable is not considered additional interest expense; it is an additional amount paid over the face value of the debenture, often treated as a capital loss or amortized over the life of the debenture.

Question 17

Accounts payable is always shown on the balance sheet in current liabilities.

Accepted Answer

Accounts payable represents the amount a company owes to its vendors or suppliers for goods or services received but not yet paid for. Since it is a liability that is expected to be paid within the next 12 months, it is included in the current liabilities section of the balance sheet.

Question 18

Premium on debentures payable is spread over the term of the debentures and reduces total interest expense.

Accepted Answer

Premium on debentures payable is the excess amount paid by investors over the face value of the debentures. This premium is spread over the term of the debentures and reduces the total interest expense. This is because the premium is treated as a capital receipt and is gradually written off over the debenture's term. Therefore, the net cost of debentures reduces, leading to a decrease in total interest expense.

Question 19

Blanding Company issues $1,020,000 of 8%,10-year debentures at 94 on 28 February 2017.The debentures pay interest on 28 February and 31 August.On 31 August 2017,how much cash did Blanding pay out to investors? (Round to the nearest dollar. )

Accepted Answer

Blanding Company pays interest semi-annually. The annual interest is 8% of $1,020,000, which is $81,600. For six months, the interest is half of that, which is $40,800.

Question 20

The Amazing Widget Company issues $515,000 of 12%,10-year debentures at 105 on 30 April 2017.The debentures pay interest on 30 April and 31 October.Assume that the company uses the straight-line method for amortisation.What is the journal entry to record the first interest payment on 31 October 2017? (Round to the nearest dollar. )

Accepted Answer

The answer of The Amazing Widget Company issues $515,000 of...

Quiz 12: Non-Current Liabilities, Debentures Payable and Classification of Liabilities on the Balance Sheet