1. Demonstration Problems Chapter 12 Long-Term Liabilities © 2016 Pearson Education, Inc. 12-1

2. © 2016 Pearson Education, Inc. 12-2 Consider the following note payable transactions of Precious Manufacturing Technologies. Demonstration of E12-17 2016 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. 2017 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, 2017?

3. © 2016 Pearson Education, Inc. 12-3 May. 1: Purchased equipment costing $100,000 by issuing a ten-year, 15% note payable. DateAccounts and ExplanationDebitCredit 2016 May 1 Equipment100,000 Notes Payable 100,000 Purchased equipment by issuing a 10-year, 15% note. Demonstration of E12-17-Req. 1

4. © 2016 Pearson Education, Inc. 12-4 Dec. 31: Accrued interest on the note payable. DateAccounts and ExplanationDebitCredit 2016 Dec. 31 Interest Expense ﴾$100,000 × 0.15 × 8/12﴿10,000 Interest Payable 10,000 Recognized accrued interest. Demonstration of E12-17-Req. 1

5. © 2016 Pearson Education, Inc. 12-5 May 1: Paid the first installment on the note. DateAccounts and ExplanationDebitCredit 2017 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. Demonstration of E12-17-Req. 1

6. © 2016 Pearson Education, Inc. 12-6 Dec. 31: Accrued interest on the note payable. DateAccounts and ExplanationDebitCredit 2017 Dec. 31 Interest Expense ($90,000 × 0.15 × 8/12)9,000 Interest Payable9,000 Recognized accrued interest. Demonstration of E12-17-Req. 1

7. Dec. 31, 2015 Interest Payable﴾$90,000 × 0.15 × 8/12﴿ $9,000 © 2016 Pearson Education, Inc. 12-7 Precious Manufacturing Technologies' total liabilities on December 31, 2017 Demonstration of E12-17-Req. 2

8. Dec. 31, 2015 Interest Payable﴾$90,000 × 0.15 × 8/12﴿ $9,000 Notes Payable 90,000 © 2016 Pearson Education, Inc. 12-8 Precious Manufacturing Technologies' total liabilities on December 31, 2017 Demonstration of E12-17-Req. 2

9. Dec. 31, 2017 Interest Payable﴾$90,000 × 0.15 × 8/12﴿ $9,000 Notes Payable 90,000 Total liabilities $99,000 © 2016 Pearson Education, Inc. 12-9 Precious Manufacturing Technologies' total liabilities on December 31, 2017 Demonstration of E12-17-Req. 2

10. © 2016 Pearson Education, Inc. 12-10 Demonstration of E12-24 Requirements 1.Journalize the issuance of the bonds on January 1, 2016. 2.Journalize the semi-annual interest payment and amortization of bond premium on June 30, 2016. 3.Journalize the semi-annual interest payment and amortization of bond premium on December 31, 2016. 4.Journalize the retirement of the bond at maturity. (Give the date.) On January 1, 2016, 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. © 2016 Pearson Education, Inc. 12-11 For issuance of the bonds on January 1, 2016 DateAccounts and ExplanationDebitCredit 2016 Jan. 1 Cash ($180,0000 × 1.02)183,600 Premium on Bonds Payable ($183,600 − $180,000) 3,600 Bonds Payable 180,000 Demonstration of E12-24-Req. 1

12. © 2016 Pearson Education, Inc. 12-12 For semi-annual interest payment and amortization of bond premium on June 30, 2016 DateAccounts and ExplanationDebitCredit 2016 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 Demonstration of E12-24-Req. 2

13. © 2016 Pearson Education, Inc. 12-13 For semi-annual interest payment and amortization of bond premium on Dec. 30, 2016 DateAccounts and ExplanationDebitCredit 2016 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 Demonstration of E12-24-Req. 3

14. © 2016 Pearson Education, Inc. 12-14 For the retirement of the bond at maturity DateAccounts and ExplanationDebitCredit 2031 Jan. 1 Bonds Payable180,000 Cash180,000 Demonstration of E12-24-Req. 4

15. © 2016 Pearson Education, Inc. 12-15 Demonstration of E12-27 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.

16. © 2016 Pearson Education, Inc. 12-16 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 Demonstration of E12-27

17. © 2016 Pearson Education, Inc. 12-17 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 Demonstration of E12-27

18. © 2016 Pearson Education, Inc. 12-18 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 Demonstration of E12-27

19. © 2016 Pearson Education, Inc. 12-19 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 Demonstration of E12-27

20. © 2016 Pearson Education, Inc. 12-20 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 Demonstration of E12-27

21. © 2016 Pearson Education, Inc. 12-21 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 Demonstration of E12-27

22. © 2016 Pearson Education, Inc. 12-22 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 Demonstration of E12-27

23. © 2016 Pearson Education, Inc. 12-23 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 Demonstration of E12-27

24. © 2016 Pearson Education, Inc. 12-24 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 Demonstration of E12-27

25. End of Chapter 12 12-25 © 2016 Pearson Education, Inc.