Question

Exercise 14-20 At December 31, 2017, Grouper Company has outstanding three long-term debt issues. The first is a $2,050,000 note payable which matures June 30, 2020. The second is a $5,920,000 bond issue which matures September 30, 2021. The third is a $12,810,000 sinking fund debenture with annual sinking fund payments of $2,562,000 in each of the years 2019 through 2023. Prepare the required note disclosure for the long-term debt at December 31, 2017. Long-term Debt 2018 $ 2019 $ 2020 $ 2021 $ 2022 $

Answer 1

Fundamentals

Long Term Debts : It is an obligation to pay the debt in more than one year i.e amount owed for a period exceeding 12 months.

Bond Payable : It is a long term agreement issued by the corporation to Bondholders. Who are entitled to receive a specified interest on them.

Sinking Fund Debenture : A sinking fund is created to set aside money overtime in order to repay its obligation. So Sinking fund debenture is basically a fund which is created to retire the prinicipal amount of Debenture on Maturity.

Prepare the required note disclosure for the long-term debt at December 31, 2017. Long-term Debt 2018 $ 2019 $ 2020 $ 2021 $ 2022 $

Note Disclosure for the long-term debt as on December 31, 2017 would be as below

Maturities and Sinking Fund requirement on long term debts are as below

Years	Requirment	Workings
2018	$ 0
2019	$ 2,562,000
2020	$ 4,612,000	($ 2,050,000 + $ 2,562,000)
2021	$ 8,482,000	($ 5,920,000 + $ 2,562,000)
2022	$ 2,562,000

Explanations:

There is a requirement to report liabilities in statement of net position to disclose the following component:

Amount that would be due in one year representing current portion

Amount that would be due in more than one year representing the non current position

Now for the year 2018 there is no maturity for the bond, note or debendure is due. Hence the disclosure amount for December 31, 2017 is zero.

For the year 2019, only annual sinking fund payment would become due and hence the disclosure amount for long term debt for December 31, 2017 would be $ 2,562,000.

For the year 2020, annual sinking fund payment and note note payable maturing on June 30, 2020 would become due. Hence  the disclosure amount for long term debt for December 31, 2017 would be $ $ 4,612,000 ($ 2,050,000 + $ 2,562,000) i.e annual sinking fund payment of $ 2,562,000 plus note Payable of $ $ 2,050,000.

For the year 2021, annual payment of Sinking fund debenture and Bond payable which is maturing on September 30, 2021 would become due. Hence the disclosure amount for long term debt for December 31, 2017 would be $ 8,482,000 ($ 5,920,000 + $ 2,562,000) i.e. .e annual sinking fund payment of $2,562,000 plus Bond payable of $ 5,920,000.

For the year 2022, only annual payment of Sinking fund debenture would become due and hence  the disclosure amount for long term debt for December 31, 2017 would be $ 2,562,000.