1. Chapter 12 Demonstration Problems Long-Term Liabilities Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-1

2. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-2 Consider the following note payable transactions of Precious Manufacturing Technologies. E12-17D 2014 May 1Purchased equipment costing $100,000 by issuing a ten-year, 15% note payable. The note requires annual principal payments of $10,000 plus interest each May 1. Dec. 31Accrued interest on the note payable. 2015 May 1Paid the first installment on the note. Dec. 31Accrued interest on the note payable. Requirements 1.Journalize the transactions for the company. 2.Considering the given transactions only, what are Precious Manufacturing Technologies' total liabilities on December 31, 2015?

3. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-3 May. 1: Purchased equipment costing $100,000 by issuing a ten-year, 15% note payable. E12-17D—Req.1 DateAccounts and ExplanationDebitCredit 2014 May 1 Equipment100,000 Notes Payable 100,000 Purchased equipment by issuing a 10-year, 15% note.

4. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-4 Dec. 31: Accrued interest on the note payable. E12-17D—Req.1 DateAccounts and ExplanationDebitCredit 2014 Dec. 31 Interest Expense ﴾$100,000 × 0.15 × 8/12﴿10,000 Interest Payable 10,000 Recognized accrued interest.

5. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-5 May 1: Paid the first installment on the note. E12-17D—Req.1 DateAccounts and ExplanationDebitCredit 2015 May 1 Interest Expense ($100,000 × 0.15 × 4/12)5,000 Interest Payable10,000 Notes Payable10,000 Cash 25,000 Paid first installment of note.

6. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-6 Dec. 31: Accrued interest on the note payable. E12-17D—Req.1 DateAccounts and ExplanationDebitCredit 2015 Dec. 31 Interest Expense ($90,000 × 0.15 × 8/12)9,000 Interest Payable9,000 Recognized accrued interest.

7. Dec. 31, 2015 Interest Payable﴾$90,000 × 0.15 × 8/12﴿ $9,000 Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-7 E12-17D—Req.2 Precious Manufacturing Technologies' total liabilities on December 31, 2015

8. Dec. 31, 2015 Interest Payable﴾$90,000 × 0.15 × 8/12﴿ $9,000 Notes Payable 90,000 Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-8 E12-17D—Req.2 Precious Manufacturing Technologies' total liabilities on December 31, 2015

9. Dec. 31, 2015 Interest Payable﴾$90,000 × 0.15 × 8/12﴿ $9,000 Notes Payable 90,000 Total liabilities $99,000 Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-9 E12-17D—Req.2 Precious Manufacturing Technologies' total liabilities on December 31, 2015

10. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-10 E12-23D Requirements 1.Journalize the issuance of the bonds on January 1, 2014. 2.Journalize the semi-annual interest payment and amortization of bond premium on June 30, 2014. 3.Journalize the semi-annual interest payment and amortization of bond premium on December 31, 2014. 4.Journalize the retirement of the bond at maturity. (Give the date.) On January 1, 2014, Danial Unlimited issues 8%, 15-year bonds payable with a face value of $180,000. The bonds are issued at 102 and pay interest on June 30 and December 31.

11. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-11 For issuance of the bonds on January 1, 2014 E12-23D—Req.1 DateAccounts and ExplanationDebitCredit 2014 Jan. 1 Cash ($180,0000 × 1.02)183,600 Premium on Bonds Payable ($183,600 − $180,000) 3,600 Bonds Payable 180,000

12. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-12 For semi-annual interest payment and amortization of bond premium on June 30, 2014 E12-23D—Req.2 DateAccounts and ExplanationDebitCredit 2014 Jun. 30 Interest Expense ($7,200 − $120)7,080 Premium on Bonds Payable ($3,600 × 1/30)120 Cash ($180,000 × 0.08 × 6/12) 7,200

13. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-13 For semi-annual interest payment and amortization of bond premium on Dec. 30, 2014 E12-23D—Req.3 DateAccounts and ExplanationDebitCredit 2014 Dec. 30 Interest Expense ﴾$7,200 − $120﴿7,080 Premium on Bonds Payable ﴾$3,600 × 1/30﴿120 Cash ﴾$180,000 × 0.08 × 6/12﴿ 7,200

14. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-14 For the retirement of the bond at maturity E12-23D—Req.4 DateAccounts and ExplanationDebitCredit 2029 Jan. 1 Bonds Payable180,000 Cash180,000

15. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-15 E12-26D At December 31, Mad Style Metals owes $30,000 on Accounts Payable, Salaries Payable of $10,000, and Income Tax Payable of $7,000. Mad Style also has $220,000 of Bonds Payable that were issued at face value that require payment of a $22,000 installment next year and the remainder in later years. The bonds payable require an annual interest payment of $2,200, and Mad Style still owes this interest for the current year. Report Mad Style’s liabilities on its classified balance sheet. List the current liabilities in descending order (largest first and so on), and show the total of current liabilities.

16. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-16 E12-26D Accounts Payable$30,000 Current Portion of Bonds Payable22,000 Salaries Payable10,000 Income Tax Payable7,000 Interest Payable2,200 Bonds Payable198,000 Mad Style Metals Balance Sheet (Partial) Dec-31 Liabilities Current Liabilities Accounts Payable$30,000

17. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-17 E12-26D Accounts Payable$30,000 Current Portion of Bonds Payable22,000 Salaries Payable10,000 Income Tax Payable7,000 Interest Payable2,200 Bonds Payable198,000 Mad Style Metals Balance Sheet (Partial) Dec-31 Liabilities Current Liabilities Accounts Payable$30,000 Current Portion of Bonds Payable22,000

18. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-18 E12-26D Accounts Payable$30,000 Current Portion of Bonds Payable22,000 Salaries Payable10,000 Income Tax Payable7,000 Interest Payable2,200 Bonds Payable198,000 Mad Style Metals Balance Sheet (Partial) Dec-31 Liabilities Current Liabilities Accounts Payable$30,000 Current Portion of Bonds Payable22,000 Salaries Payable10,000

19. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-19 E12-26D Accounts Payable$30,000 Current Portion of Bonds Payable22,000 Salaries Payable10,000 Income Tax Payable7,000 Interest Payable2,200 Bonds Payable198,000 Mad Style Metals Balance Sheet (Partial) Dec-31 Liabilities Current Liabilities Accounts Payable$30,000 Current Portion of Bonds Payable22,000 Salaries Payable10,000 Income Tax Payable7,000

20. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-20 E12-26D Accounts Payable$30,000 Current Portion of Bonds Payable22,000 Salaries Payable10,000 Income Tax Payable7,000 Interest Payable2,200 Bonds Payable198,000 Mad Style Metals Balance Sheet (Partial) Dec-31 Liabilities Current Liabilities Accounts Payable$30,000 Current Portion of Bonds Payable22,000 Salaries Payable10,000 Income Tax Payable7,000 Interest Payable2,200

21. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-21 E12-26D Accounts Payable$30,000 Current Portion of Bonds Payable22,000 Salaries Payable10,000 Income Tax Payable7,000 Interest Payable2,200 Bonds Payable198,000 Mad Style Metals Balance Sheet (Partial) Dec-31 Liabilities Current Liabilities Accounts Payable$30,000 Current Portion of Bonds Payable22,000 Salaries Payable10,000 Income Tax Payable7,000 Interest Payable2,200 Total Current Liabilities$71,200

22. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-22 E12-26D Accounts Payable$30,000 Current Portion of Bonds Payable22,000 Salaries Payable10,000 Income Tax Payable7,000 Interest Payable2,200 Bonds Payable198,000 Mad Style Metals Balance Sheet (Partial) Dec-31 Liabilities Current Liabilities Accounts Payable$30,000 Current Portion of Bonds Payable22,000 Salaries Payable10,000 Income Tax Payable7,000 Interest Payable2,200 Total Current Liabilities$71,200 Long-Term Liabilities Bonds Payable198,000

23. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-23 E12-26D Accounts Payable$30,000 Current Portion of Bonds Payable22,000 Salaries Payable10,000 Income Tax Payable7,000 Interest Payable2,200 Bonds Payable198,000 Mad Style Metals Balance Sheet (Partial) Dec-31 Liabilities Current Liabilities Accounts Payable$30,000 Current Portion of Bonds Payable22,000 Salaries Payable10,000 Income Tax Payable7,000 Interest Payable2,200 Total Current Liabilities$71,200 Long-Term Liabilities Bonds Payable198,000 Total Long-Term Liabilities198,000

24. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall12-24 E12-26D Accounts Payable$30,000 Current Portion of Bonds Payable22,000 Salaries Payable10,000 Income Tax Payable7,000 Interest Payable2,200 Bonds Payable198,000 Mad Style Metals Balance Sheet (Partial) Dec-31 Liabilities Current Liabilities Accounts Payable$30,000 Current Portion of Bonds Payable22,000 Salaries Payable10,000 Income Tax Payable7,000 Interest Payable2,200 Total Current Liabilities$71,200 Long-Term Liabilities Bonds Payable198,000 Total Long-Term Liabilities198,000 Total Liabilities$269,200

25. End of Chapter 12 12-25Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall