Horngren’s Financial and Managerial Accounting, 6e (Miller-Nobles)
1) 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.
2) The current portion of notes payable is reported on the balance sheet under current liabilities.
3) The issuance of a note is recorded, on the books of the borrower, by crediting Cash and debiting Notes
Receivable.
4) When preparing an amortization schedule, the interest expense increases each year because the
principal decreases with each installment payment.
5) On March 1, 2018, Vintage Services issued an 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, 2019. 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.
6) A note payable can be classified either as a long-term liability or a short-term liability, depending on
the discretion of the accountant.
7) An amortization schedule details each loan payment’s allocation between principal as well as interest
and the beginning and ending balances of the loan.
8) On March 1, 2018, Barker Services issued a 5% long-term notes payable for $21,000. It is payable over a
3-year term in $7000 annual principal payments on March 1 of each year plus interest, beginning March 1,
2019. How will the notes payable be shown on the balance sheet dated December 31, 2018?
A) $21,000 shown as current liability only
B) $7000 shown as current liability and $21,000 shown as long-term liability
C) $7000 shown as current liability and $14,000 shown as long-term liability
D) the entire $21,000 shown as long-term liability
9) On March 1, 2018, Everson Services issued a 4% long-term notes payable for $16,000. It is payable over
a 4-year term in $4000 annual principal payments on March 1 of each year plus interest, beginning March
1, 2019. Each yearly installment will include both principal repayment of $4000 and interest payment for
the preceding one-year period. On March 1, 2019, ________. The accounting period ends on December 31.
A) Everson must accrue $4000 of Interest Expense
B) Everson must accrue the next note payment of $4000 as the current portion of principal payment
C) Everson must pay $640 of interest to the note holder
D) Everson will receive $4000 as an installment payment
10) On March 1, 2018, Mandy Services issued a 3% long-term notes payable for $15,000. It is payable over
a 3-year term in $5000 principal installments on March 1 of each year, beginning March 1, 2019. Each
yearly installment will include both principal repayment of $5000 and interest payment for the preceding
one-year period. What is the amount of total cash payment that Mandy will make on March 1, 2019?
A) $5000
B) $5450
C) $15,000
D) $5225
11) On March 1, 2018, Lewis Services issued a 6% long-term notes payable for $18,000. It is payable over a
3-year term in $6000 principal installments on March 1 of each year, beginning March 1, 2019. Which of
the following entries needs to be made on March 1, 2018?
A)
Long-Term Notes Payable
6000
Cash
6000
B)
Current Portion of Long-Term Notes Payable
18,000
Long-Term Notes Payable
18,000
C)
Long-Term Notes Payable
18,000
Accounts Payable
18,000
D)
Cash
18,000
Long-Term Notes Payable
18,000
12) On December 1, 2018, Modern 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, 2018?
(Round your answer to nearest whole number.)
A) $16,800
B) $26,880
C) $10,080
D) $33,600
13) On November 1, 2018, A-1 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, 2020,
what is the balance of the Long-Term Notes Payable account? (Round your answer to nearest whole
number.)
A) $38,400
B) $64,000
C) $51,200
D) $12,800
14) On December 1, 2018, Garden Products borrowed $92,000 on a 5%, 10-year note with annual
installment payments of $9200 plus interest due on December 1 of each subsequent year. Which of the
following describes the first installment payment made on December 1, 2019? (Round your answer to the
nearest whole number.)
A) $9200 principal plus $4600 interest
B) $9200 principal plus $460 interest
C) $9200 principal plus $9200 interest
D) $4600 interest only
15) Get Away Vacations signed a 14%, 10-year note for $157,000. The company paid an installment of
$2100 for the first month. What portion of the first monthly payment is interest expense? (Do not round
any intermediate calculations, and round your final answer to the nearest dollar.)
A) $268
B) $35,063
C) $15,183
D) $1832
16) Celebrate Holidays Company signed a 7%, 10-year note for $161,000. The company paid an
installment of $2500 for the first month. What portion of the first monthly payment is principal? (Do not
round any intermediate calculations, and round your final answer to the nearest dollar.)
A) $1561
B) $4061
C) $4830
D) $15,917
17) Adventure Travel signed a 14%, 10-year note for $152,000. The company paid an installment of $2200
for the first month. After the first payment, what is the principal balance? (Do not round any intermediate
calculations, and round your final answer to the nearest dollar.)
A) $149,800
B) $150,227
C) $151,573
D) $154,200
18) On May 1, 2018, Plumbing 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, 2019. Prepare the journal entry for the issuance of the note. Omit explanation.
19) In order to expand its business, the management of Areos, 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. Omit
explanation.
20) In order to expand its business, the management of Hampton, Inc. issued a long-term notes payable
for $50,000 on January 1, 2018. 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. Omit explanation.
21) On January 1, 2018, Belden, Inc. issued long-term notes payable for $50,000. The note will be paid over
10 years with payments of $5,000 plus 12% interest due each January 1, beginning January 1, 2019.
Prepare the amortization schedule for the first three payments.
22) On April 1, 201, Arbor Gardening Products borrowed $100,000 on a 15%, 10-year note with annual
installment payments of $10,000 plus interest due on April 1 of each subsequent year. Prepare the journal
entry for the issuance of the note. Omit explanation.
23) On January 1, 2018, Shade Landscaping borrowed $100,000 on a 15%, 10-year note with annual
installment payments of $10,000 plus interest due on December 31 of each year. Prepare the journal entry
for the first installment payment made on December 31, 2018. Omit explanation.
24) On January 1, 2018, Belview, Inc. issued long-term notes payable for $50,000. The note will be paid
over 10 years with payments of $5,000 plus 12% interest due each January 1, beginning January 1, 2019.
The amortization schedule for the first three payments is provided. Prepare the journal entries for the
issuance of the note and for the January 1, 2020 note payment. Omit explanation.
Beginning
Balance
Principal
Payment
Interest
Expense
Total
Payment
Ending
Balance
01/01/2018
$50,000
01/01/2019
$50,000
$5,000
$6,000
$11,000
45,000
01/01/2020
45,000
5,000
5,400
10,400
40,000
01/01/2021
40,000
5,000
4,800
9,800
35,000
25) A mortgage payable is a long-term debt that is backed with a security interest in specific property.
26) The difference between mortgages payable and notes payable is that notes payable are always secured
by specific assets.
27) Installment payments for mortgages generally contain both an amount for principal repayment and
an amount for interest.
28) Long-term liabilities can be structured either with an equal principal payment or with an equal total
payment.
29) On January 1, 2018, Brazos Company purchased equipment and signed a six-year mortgage note for
$97,000 at 15%. The note will be paid in equal annual installments of $25,631, beginning January 1, 2019.
On January 1, 2019, the journal entry to record the first installment payment will include a ________.
(Round your answer to the nearest whole number.)
A) debit to Mortgage Payable for $25,631
B) debit to Interest Expense for $14,550
C) credit to Cash for $11,081
D) credit to Mortgage Payable for $97,000