Question

Novak Corporation is preparing its December 31, 2020, balance sheet. The following items may be reported as either a current or long-term liability.

1.		On December 15, 2020, Novak declared a cash dividend of $3.50 per share to stockholders of record on December 31. The dividend is payable on January 15, 2021. Novak has issued 1,000,000 shares of common stock, of which 50,000 shares are held in treasury.
2.		At December 31, bonds payable of $104,670,000 are outstanding. The bonds pay 12% interest every September 30 and mature in installments of $26,167,500 every September 30, beginning September 30, 2021.
3.		At December 31, 2019, customer advances were $14,847,000. During 2020, Novak collected $31,750,000 of customer advances; advances of $25,448,000 should be recognized in income.

For each item above, indicate the dollar amounts to be reported as a current liability and as a long-term liability, if any.

						Reported as
1.		Dividends payable		$enter a dollar amount		select a liability type                                                          Current LiabilityLong-term Liability
2.		Bonds payable (September 30, 2021 installment)		$enter a dollar amount		select a liability type                                                          Current LiabilityLong-term Liability
		Bonds payable (Other than September 30, 2021 installment)		$enter a dollar amount		select a liability type                                                          Current LiabilityLong-term Liability
		Interest payable		$enter a dollar amount		select a liability type                                                          Current LiabilityLong-term Liability
3.		Customer advances		$enter a dollar amount		select a liability type                                                          Current LiabilityLong-term Liability

PLEASE PROVIDE STEPS WITH EXPLANATION AND ANSWERS. THANK YOU!

Answer 1

1)

Dividends payable of $3,325,000 will be reported as a current liability [(1,000,000 – 50,000) * $3.50]

No amounts are reported as a long- term liability.

Stock dividends distributable are reported in the stockholders' equity section.

2)

Bonds payable of $26,167,500 and interest payable of $3,140,100 ($104,670,000*12%*3/12) will be reported as a current liability.

Bonds payable of $78,502,500 ($104,670,000 - $26,167,500) will be reported as a long-term liability.

3)

Customer advances of $21,149,000 will be reported as a current liability

($14,847,000 + $31,750,000–$25,448,000).

		Reported as
Dividend Payable	$3,325,000	Current liability
Current maturity of bond payable	$26,167,500	Current liability
Bond payable	$78,502500	Long term liability
Interest payable	$3,140,100	Current liability
Customers Advance	$21,149,000	Current liability

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