[DiXing82]

1. Able, Inc. had the following amounts of long-term debt outstanding at December 31, year 1:

14 1/2% term note, due year 2 $ 3,000

11 1/8% term note, due year 5 107,000

8% note, due in 11 equal annual principal payments, plus interest

beginning December 31, year 2 110,000

7% guaranteed debentures, due year 6 100,000

Total $320,000

Assume Able does not elect the fair value option to value financial liabilities. Able’s annual sinking-fund requirement on the guaranteed debentures is $4,000 per year. What amount should Able report as current maturities of long-term debt in its December 31, year 1 balance sheet?

A. $ 4,000

B. $ 7,000

C. $10,000

D. $13,000

Hi guys, anyone know why I should choose D for this question? I can’t understand the meaning of “14 1/2% term note, due year 2” and “11 1/8% term note, due year 5”. Can someone help me? Thanks a lot!

FAR---79
REG---85
AUD---Fail on Jan 2016 Retake on 4/30/2016
BEC---75

[confusedcandidate]

Don't overthink it. The 14.5% 3000 note is due next year, current liability. The 8% note is due in 11 equal installments. 110000/11=10,000. 10,000+3000=13000.

To further answer your question: I think 14 1/2% means the note is 14.5% but I agree it is worded kind of strangely.

Weekends are meaningless to a CPA candidate

[mla1169]

The 14.5% term note means the interest of 14.5% is due in year 1 and year 2, and the principal is due during year 2. The current liabilities portion of the balance sheet at the end of year 1 is the principal of the notes that will be paid in year 2 which is the 3k note due year 2 plus the portion of the 8% note due in year 2 (110k/11 years=10k).

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[DiXing82]

@confusedcandidate @mla1169 Thank you for your explanations! Clear! Yes I agree it is a very strange way to express its interest rate. Kind of confusing.

FAR---79
REG---85
AUD---Fail on Jan 2016 Retake on 4/30/2016
BEC---75

[Author]

Replies