#1 - Accounting for a long-term note payable

Learning Objective

1) On January 1, 2018, Lakeman-Fay signed a $1,500,000, 15-year, 7% note. The loan required Lakeman-Fay to make annual payments on December 31 of $100,000 principal plus interest.

Requirements

1.Journalize the issuance of the note on January 1, 2018.

2.Journalize the first note payment on December 31, 2018.

3.How much principal does Lakeman-Fay owe after the first annual payment on December 31, 2018?

#2 - Determining bond prices

Learning Objective

2 Bond prices depend on the market rate of interest, stated rate of interest, and time. Determine whether the following bonds payable will be issued at face value, at a premium, or at a discount:

a. The market interest rate is 4%. Denton issues bonds payable with a stated rate of 4%.

b. Starkville issued 8% bonds payable when the market interest rate was 8.25%.

c. Houston issued 6% bonds when the market interest rate was 5%.

d. Federal issued bonds payable that pay the stated interest rate of 5.5%. At issuance, the market interest rate was 7.75%.