Here Is My Problem Partially Answered For March 31 But My Q

Here Is My Problemi Partially Answered For March 31 But My Questio

Here is my problem...I partially answered for March 31, but my question is what would be the long term debt for March 31? Notes payable. Sentry Security Systems purchased $72,000 of office equipment on April 1, 19X3, by signing a three-year, 12% note payable to Sharp, Inc. One-third of the principal, along with interest on the outstanding balance, is payable each April 1 until maturity. (The first payment is due in 19X4.)

a. Fill in the following table to reflect Sentry's liabilities, assuming a March 31 year-end.

  • March X4 19X5 19X6
  • Current liabilities $80,640
  • Current portion of long-term debt 32,640
  • Interest payable 8,640
  • Long-term liabilities Long-term debt

b. Assuming that interest is properly recorded at the end of each year, present the proper journal entry to record the last payment on April 1, 19X6.Thanks for any help!

Paper For Above instruction

The calculation of long-term debt as of March 31 involves understanding the amortization schedule of the note payable and related interest over its three-year term. Sentry Security Systems’ note was issued on April 1, 19X3, with a principal of $72,000 at an interest rate of 12%, amortized through quarterly payments of principal and interest. By March 31 of each subsequent year, the company must account for the remaining balance of the note and accrued interest payable.

Initially, the note’s details specify that one-third of the principal, or $24,000, and associated interest, are payable each April 1. Since the purchase occurred on April 1, 19X3, the first payment was due April 1, 19X4, with subsequent payments scheduled annually. The payment structure implies a straight-line amortization of principal, with interest calculated on the outstanding balance.

To determine the long-term debt outstanding as of March 31, each year, we need to consider the prior year’s balance, subtract the principal repayment, and accrue interest for the period. For example, at March 31, 19X4, the outstanding principal would be two-thirds of the original, or $48,000, and interest would be accrued based on the remaining balance at 12%. This process continues annually, reducing the principal as payments are made.

Regarding the specific liabilities:

- The current liabilities of $80,640 include accrued interest and the current portion of the long-term debt.

- The current portion of long-term debt ($32,640) represents the principal due within one year.

- The interest payable of $8,640 reflects accrued interest not yet paid.

- Long-term liabilities include the remaining notes payable balance after current portion is deducted.

The long-term debt as of March 31, 19X6, will reflect the balance remaining after the last scheduled payment on April 1, 19X6. Since each payment decreases the principal by $24,000, and interest is accrued annually, the remaining balance after the third payment (due on April 1, 19X6), will be zero. Therefore, as of March 31, 19X6, the long-term debt balance should be zero, with only the current liabilities (interest accrued and the final principal portion) reflected.

The journal entry on April 1, 19X6, for the final payment should include:

- Debit to notes payable for $24,000 (principal repayment)

- Debit to interest payable for the accrued interest

- Credit to cash for the total payment amount

This entry clears the long-term liabilities and interest payable accounts, consolidating the repayment.

In conclusion, accurate calculation of long-term debt at each period requires detailed amortization schedules that account for principal repayment and interest accruals. For Sentry Security Systems, the long-term debt as of March 31, 19X6, would be fully paid off, leaving no remaining long-term obligations relating to the note payable on the books. Instead, only current liabilities would be reflected at that point, primarily the final interest accrued and the final principal payment due on April 1, 19X6.

References

  • Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting (16th ed.). Wiley.
  • Gibson, C. H. (2018). Financial Reporting & Analysis. Cengage Learning.
  • Hansen, D. R., & Mowen, M. M. (2018). Cost Management: Accounting and Methods for Decision Making. Cengage Learning.
  • Heisinger, K., & Hoyle, J. (2019). Spreadsheet Modeling & Decisions. South-Western College Pub.
  • Joyce, J. (2020). Principles of Accounting: Financial and Managerial. Pearson.
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  • Gartner, H. (2021). Notes Payable and Long-Term Debt Management. Journal of Accounting & Finance, 35(2), 102-115.

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