Question

The following items are found in the financial statements.

Indicate how each of these items should be classified in the financial statements.
Classification
(a) Discount on bonds payable
Balance Sheet Income statement

(b) Interest expense (credit balance)
Balance Sheet Income statement

(c) Unamortized bond issue costs
Balance Sheet Income statement

(d) Gain on repurchase of debt
Balance Sheet Income statement

(e) Mortgage payable (payable in equal amounts over next 3 years)
Balance Sheet Income statement

(f) Debenture bonds payable (maturing in 5 years)
Balance Sheet Income statement

(g) Notes payable (due in 4 years)
Balance Sheet Income statement

(h) Premium on bonds payable
Balance Sheet Income statement

(i) Bonds payable (due in 3 years)
Balance Sheet Income statement

Answer 1

(a) Discount on bonds payable ⇒ SHOULD BE REPORTED IN THE BALANCE SHEET UNDER LIABILITIES

(b) Interest expense (credit balance) ⇒ WHEN INTEREST EXPENSE IS INCLUDED IN THE INCOME STATEMENT IT HAS A DEBIT BALANCE, WHEN IT HAS A CREDIT BALANCE IT MEANS IT IS A LIABILITY AND MUST BE REPORTED IN THE BALANCE SHEET

(c) Unamortized bond issue costs ⇒ SHOULD BE REPORTED IN THE BALANCE SHEET, IT IS A CONTRA LIABILITY ACCOUNT

(d) Gain on repurchase of debt ⇒ SHOULD BE REPORTED IN THE INCOME STATEMENT AS PART OF OTHER GAINS AND LOSSES

(e) Mortgage payable (payable in equal amounts over next 3 years) ⇒ SHOULD BE REPORTED IN THE BALANCE SHEET UNDER LIABILITIES (UNDER CURRENT AND LONG TERM LIABILITIES)

(f) Debenture bonds payable (maturing in 5 years) ⇒ SHOULD BE REPORTED IN THE BALANCE SHEET UNDER LONG TERM LIABILITIES

(g) Notes payable (due in 4 years) ⇒ SHOULD BE REPORTED IN THE BALANCE SHEET UNDER LONG TERM LIABILITIES

(h) Premium on bonds payable ⇒ SHOULD BE REPORTED IN THE BALANCE SHEET UNDER LIABILITIES (REDUCES BONDS PAYABLE)

(i) Bonds payable (due in 3 years) ⇒ SHOULD BE REPORTED IN THE BALANCE SHEET UNDER LONG TERM LIABILITIES