SOLUTIONS TO EXERCISES

EXERCISE 14-1 (15-20 minutes)

a) Valuation account relating to the long-term liability, bonds payable (sometimes referred to as an adjunct account). The $3,000 would continue to be reported as long-term. b) Current liability if current assets are used to satisfy the debt. c) Current liability, $200,000; long-term liability, $800,000. d) Current liability. e) Probably noncurrent, although if operating cycle is greater than one year and current assets are used, this item would be classified as current. f) Current liability. g) Current liability unless (a) a fund for liquidation has been accumulated which is not classified as a current asset or (b) arrangements have been made for refinancing. h) Current liability. i) Current liability.

EXERCISE 14-2 (15-20 minutes)

a) Discount on Bonds Payable—Contra account to bonds payable on balance sheet. b) Interest expense (credit balance)—Reclassify to interest payable on balance sheet. c) Unamortized Bond Issue Costs—Classified as “Other Assets” on balance sheet. d) Gain on repurchase of debt—Classify as part of other gains and losses on the income statement. e) Mortgage payable—Classify one-third as current liability and the remainder as long-term liability on balance sheet. f) Debenture bonds—Classify as long-term liability on balance sheet. g) Notes payable—Classify as long-term liability on balance sheet. h) Premium on bonds payable—Classify as adjunct account to Bonds Payable on balance sheet. i) Treasury bonds—Classify as contra account to bonds payable on balance sheet. j) Income bonds payable—Classify as long-term liability on balance sheet.

EXERCISE 14-3 (15-20 minutes)

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