Question 1

In order to expand its business,the management of Carroll,Inc.issued a long-term notes payable for $50,000 on January 1,2016.The note will be paid over a 10-year period with equal annual principal payments,December 31 of each year.The annual interest rate is 12%.Prepare the journal entry for the first installment payment.

Accepted Answer

$$\begin{array} { | l | r | r | } 
\hline \text { Interest Expense } ( \$ 50,000 \times 12 \% ) & 6,000 & \
\hline \text { Long-Term Notes Payable } ( \$ 50,000 / 10 ) & 5,000 & \
\hline \text { Cash } & & 11,000 \
\hline
\end{array}$$

Question 2

On March 1,2016,Hughes Services issued a 6% long-term notes payable for $18,000.It is payable over a 3-year term in $6,000 principal installments on March 1 of each year,beginning March 1,2017.Which of the following entries needs to be made on March 1,2016?

Accepted Answer

On March 1, 2016, Hughes Services would record the receipt of cash from issuing the note and the corresponding liability. The correct entry is to debit Cash for $18,000 and credit Long-Term Notes Payable for $18,000.

Question 3

On March 1,2016,Emerson Services issued a 4% long-term notes payable for $16,000.It is payable over a 4-year term in $4,000 annual principal payments on March 1 of each year plus interest,beginning March 1,2017.Each yearly installment will include both principal repayment of $4,000 and interest payment for the preceding one-year period.On March 1,2017,________.The accounting period ends on December 31.

Accepted Answer

Interest payment = $16,000 × 4% = $640

Question 4

On December 1,2016,Gardner Products borrowed $92,000 on a 5%,10-year note with annual installment payments of $9,200 plus interest due on December 1 of each subsequent year.Which of the following describes the first installment payment made on December 1,2017? (Round your answer to the nearest whole number. )

Accepted Answer

The first installment payment includes the principal payment of $9,200 and the interest for the first year. The interest is calculated as 5% of $92,000, which is $4,600.

Question 5

The issuance of a note is recorded,on the books of the borrower,by crediting Cash and debiting Notes Receivable.

Accepted Answer

The issuance of a note is recorded on the books of the borrower by debiting Cash and crediting Notes Receivable.

Question 6

An amortization schedule details each loan payment's allocation between principal as well as interest and the beginning and ending balances of the loan.

Accepted Answer

An amortization schedule is a table that shows the allocation of each loan payment between principal and interest, as well as the beginning and ending balances of the loan for each payment period.

Question 7

On May 1,2016,Butler Services issued a long-term note payable for $35,000.The note will be paid over five-years with annual principal payments of $7,000,plus interest,on May 1 of each year beginning on May 1,2017.Prepare the journal entry for the issuance of the note.

Accepted Answer

The answer of On May 1,2016,Butler Services issued a long-term...

Question 8

On December 1,2016,Fine Dining Products borrowed $84,000 on a 12%,5-year note with annual installment payments of $16,800 plus interest due on December 1 of each succeeding year.On December 1,the principal amount was recorded as a long-term note payable.What amount of the note payable will be shown as current portion of Long-Term Note Payable on the balance sheet as of December 31,2016? (Round your answer to nearest whole number. )

Accepted Answer

Current portion of Long-Term Note Payable = $84,000 / 5 = $16,800.

Question 9

Going Places Adventure Travel signed a 14%,10-year note for $152,000.The company paid an installment of $2,200 for the first month.After the first payment,what is the principal balance? (Round your answer to the nearest whole number. )

Accepted Answer

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Question 10

The current portion of notes payable is the principal amount that will be paid within two years of the balance sheet date,and the remaining portion is long term.

Accepted Answer

The current portion of notes payable is the principal amount that will be paid within one year of the balance sheet date; any remaining balance due beyond one year is considered long-term.

Question 11

Get Out of Town Vacations signed a 14%,10-year note for $157,000.The company paid an installment of $2,100 for the first month.What portion of the first monthly payment is interest expense? (Round your answer to the nearest whole number. )

Accepted Answer

Interest Expense for 1 month ($157,000 × 14%)× (1/12)= $1,832

Question 12

A note payable can either be classified as a long-term liability or a short-term liability,depending on the discretion of the accountant.

Accepted Answer

The answer of A note payable can either be classified...

Question 13

Trek Holidays Company signed a 9%,10-year note for $154,000.The company paid an installment of $2,900 for the first month.What portion of the first monthly payment is principal? (Round your answer to the nearest whole number. )

Accepted Answer

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Question 14

The current portion of notes payable is reported on the balance sheet under current liabilities.

Accepted Answer

The current portion of notes payable, which represents the amount of the principal of a loan that is due within the next year, is considered a current liability and is reported on the balance sheet under current liabilities. This is because it is expected to be paid within the next operating cycle or within one year, whichever is longer.

Question 15

In order to expand its business,the management of Vereos,Inc.issued a long-term notes payable for $50,000.The note will be paid over a 10-year period with equal annual principal payments,beginning in one year.The annual interest rate is 12%.Prepare the journal entry for the issuance of the note.

Accepted Answer

The answer of In order to expand its business,the management...

Question 16

On March 1,2016,Mandau Services issued a 3% long-term notes payable for $15,000.It is payable over a 3-year term in $5,000 principal installments on March 1 of each year,beginning March 1,2017.Each yearly installment will include both principal repayment of $5,000 and interest payment for the preceding one-year period.What is the amount of total cash payment that Mandau will make on March 1,2017?

Accepted Answer

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Question 17

On March 1,2016,Baker Services issued a 5% long-term notes payable for $21,000.It is payable over a 3-year term in $7,000 annual principal payments on March 1 of each year plus interest,beginning March 1,2017.How will the notes payable be shown on the balance sheet dated December 31,2016?

Accepted Answer

As of December 31, 2016, the first $7,000 principal payment due on March 1, 2017, is classified as a current liability, while the remaining $14,000 is classified as a long-term liability.

Question 18

On March 1,2016,Vantage Services issued a 8% long-term notes payable for $22,000.It is payable over a 16-year term in $1,375 principal installments on March 1 of each year,beginning March 1,2017.Each yearly installment will include both principal repayment of $1,375 and interest payment for the preceding one-year period.The journal entry to pay the first installment will include a debit to Interest Expense for $1,760.

Accepted Answer

This is because the yearly installment includes both principal repayment and interest payment for the preceding one-year period. Therefore, when the first installment is paid on March 1, 2017, it will include a payment of $1,375 towards the principal and $1,760 towards the interest expense for the preceding one-year period.

Question 19

Long-term liabilities can be structured with equal principal payments or with an equal total payment amount.

Accepted Answer

Long-term liabilities can be structured with an equal principal payment plan, where the borrower pays the same amount of principal every period, or with an equal total payment plan, where the borrower pays the same total amount every period, which includes principal and interest payments.

Question 20

On November 1,2016,EZ Products borrowed $64,000 on a 5%,5-year note with annual installment payments of $12,800 plus interest due on November 1 of each succeeding year.On November 1,2018,what is the balance of the Long-Term Notes Payable account? (Round your answer to nearest whole number. )

Accepted Answer

Long-term notes payable = $64,000 - $12,800 - $12,800 = $38,400

Quiz 12: Long-Term Liabilities