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Kaitlyn Maki

Professor Gina Heaney

Accounting 102

July 12, 2020

Chapter 14: Long-Term Liabilities

1. The current portion of notes payable is reported in the current liability section of the balance

sheet.

2. An amortization schedule details each loan payment's allocation between principal and

interest and the beginning and ending loan balances.

3. Mortgages payable are a type of long-term debts that are backed with a security interest in

specific property.

4. A bond payable is a long-term debt that is issued to multiple lenders called bondholders,

usually in increments of $1,000 per bond.

5. The stated interest rate is the interest rate that determines the amount of cash interest the

borrower pays and the investor receives each year. The market interest rate is the rate that

investors demand in order to loan their money.

6. A discount on bonds payable occurs when a bond's issue price is less than the face value

7. A premium on bonds payable occurs when a bond's issue price is greater than the face value.

8. When a bond is issued, its present value is the bond's market price.

9. A company may decide to issue bonds instead of stock because debt is a less expensive

source of capital than stock, and bonds do not affect the percentage of ownership of the

corporation.
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10. The carrying amount of bonds is the bond payable minus the current balance in the discount

account or plus the premium account current balance.

11. The straight-line amortization method allocates an equal amount of bond discount or

premium to each interest period over the life of the bond.

12. Discount on Bonds Payable is a liability account with a debit normal balance, and it is

subtracted from the Bonds Payable account to determine the carrying amount.

13. Premium on Bonds Payable is a liability account with a credit normal balance, and it is added

to the Bonds Payable account to determine the carrying amount.

14. The journal entry to retire bonds at maturity is a debit to the Bonds Payable account and

credit to the Cash account.

15. When a company calls a bond, it means they pay it off before maturity at a specific price.

16. The two categories of liabilities reported on the balance sheet are current liabilities and long-

term liabilities. Accounts payables and Notes Payable (short-term) are examples of a current

liability. Mortgages Payable and Bonds Payable are examples of long-term liabilities.

18A. The time value of money depends on the principal amount, the number of periods, and the

interest rate. The principal amount is the amount of the investment or borrowing. The

number of periods is the length of time from the beginning of the investment until

termination. The interest rate is the percentage earned on the investment.

19A. An annuity is a stream of equal cash payments made at equal time intervals.

20A. Simple interest is interest calculated only on the principal amount. Compound interest is

interest calculated on the principal and on all previously earned interest.