Question

On January 1, Year 1, Eureka Company issued $150,000 of 6-year, 4% bonds at face value. The annual cash payment for interest is due on January 1 of each year beginning January 1, Year 2. Based on this information, what is the total amount of liabilities related to these bonds that will be reported on the balance sheet at December 31, Year 1? (Hint: Consider the interest that might be owed to bondholders at December 31, Year 1.)

Answer 1

Answer:

The total liabilities of $156,000($150,000+$6,000)

Explanation:

The total liabilities to be recorded at December 31 year 1 is the value of the bonds payable plus the interest for first year that is yet to be paid.

The value of the bonds payable is $150,000 since the bonds were issued at par value.

The amount interest due at end of year 1 =face value*coupon interest rate

face value remains $150,000

coupon interest rate is 4%

the amount of coupon due at year 1 end=$150,000*4%=$6000

The interest payable is a current liability while the bonds payable of $150,000 is a non-current liability

Answer 2

The total amount of liabilities related to these bonds that will be reported on the balance sheet at December 31, Year 1 is $156,000.

Interest payable on December 31 (Year 1) = $150,000 * 4%

Interest payable on December 31 (Year 1) = $6,000

Hence, the Interest payable on Year 1 (December 31)  is $6,000.

Total amount of liabilities to be reported on the Balance Sheet:

= $150,000 + $6,000

= $156,000

Hence, the total amount of liabilities related to these bonds that will be reported on the balance sheet at December 31, Year 1 is $156,000.

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