Question

Geriatric Dispensary borrowed $ 360 comma 000 on January​ 2, 2018 ​, by issuing a 10 % serial bond payable that must be paid in three equal annual installments plus interest for the year. The first payment of principal and interest comes due January​ 2, 2019 . Complete the missing information. Assume bonds are issued at face value. ​(For accounts with a​ $0 balance, make sure to enter​ "0" in the appropriate​ cell.)

Answer 1

December 31

2018 2019 2020

current liabilities:

bonds payable 120,000 120,000 120,000

interest payable 36,000 24,000 12,000

long term liabilities:

bonds payable 240,000 120,000 0

Current liabilities include all the payments that must be made during the next year, while long term liabilities include those payments due in more than one year.

Since the debt's principal is going to be paid in three equal installments, then each installment = $360,000 / 3 = $120,000. So each year the debt's principal will reduce by $120,000.

• The interest due in January 2, 2019 = principal x 10% = $360,000 x 10% = $36,000.
• The interest due in January 2, 2020 = principal x 10% = $240,000 x 10% = $24,000.
• The interest due in January 2, 2021 = principal x 10% = $120,000 x 10% = $12,000.