Debit Credit Date ccounts and Explanation 4. How is the retirement of bonds paya
ID: 2405804 • Letter: D
Question
Debit Credit Date ccounts and Explanation 4. How is the retirement of bonds payable accounted for? a) When a bonds payable is retired at maturity, the journal entry is a debit to and a credit to 5 How are liabilities reported on the balance sheet? a) Identify if the liability would be classified as a current liability (CL) or a long-term liability (LTL) on the balance sheet. i)Bonds Payablett i) Accounts Payable cL iii) Mortgage Payable ITL iv) Accounts Payable c v) FICA taxes 6. How do we use the debt to equity ratio to evaluate performance? a) What is the formula for debt to equity ratio? b) If total current liabilities are $10,000, long-term liabilities are S20,000, and total equity in the business is $40,000, what is the debt to equity ratio?Explanation / Answer
Q4a)
Answer: Debit, bonds payable; credit, cash
Bonds payable is debited, since the liability obligation is met. Cash is credited, since there is outgoing of cash.
Q5a)
i)LTL; because bonds are matured to be repaid in more than 1 year
ii) CL; because accounts payable (like credit purchase) is a short-term loan
iii) LTL; because mortgage loans are taken for long period of time
iv) CL; because accounts payable (like credit purchase) is a short-term loan
v) CL; this is the amount of tax paid equally by employer and employee out of payroll and must be paid within the stipulated date that is in short-run.
Q6a)
Required ratio = Total liabilities / Stockholders’ equity
Both liability and equity are reflected in a firm’s balance sheet. It indicates financial leverage of the firm.
Q6b)
Required ratio = Total liabilities / Stockholders’ equity
= (Current liabilities + Long-term liabilities) / Stockholders’ equity
= (10,000 + 20,000) / 40,000
= 30,000 / 40,000
= 0.75 (Answer)
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