Paul's Valley Company issued bonds with a $10,000 face value on January 1,2012.The bonds were issued at face value and carried 5-year term to maturity.They had a 5% stated rate of interest that was payable in cash on January 1 of each year beginning January 1,2013.Based on this information alone,the amount of total liabilities appearing on the December 31,2012 balance sheet would be:

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The bonds were issued at face value, so the company received $10,000 cash on January 1, 2012. The 5% stated rate of interest means that the company has an annual interest payment of $500 ($10,000 x 5%). Since the first interest payment is not due until January 1, 2013, there is no interest expense for the year ended December 31, 2012. Therefore, the only liability on the December 31, 2012 balance sheet is the $10,000 face value of the bonds. Adding the annual interest payment of $500 results in a total liability of $10,500.

Paul's Valley Company Issued Bonds with a $10,000 Face Value