Kindly check the attached file for the questions.
Note 5: Mortgages on Property, Plant, and Equipment
In connection with these mortgages, the company is required to maintain minimum net worth and comply with other financial covenants, including a restriction limiting loans to officers to less than $2,000,000, At December 31, Year 2, the company is in compliance with these covenants.
The $ 1,794,000 note payable to bank due on April 30, Year 3, is classified as a current liability at December 31, Year 2. The aggregate maturities of mortgages are as follows ($ in thousands):
Year Amount
|
($ in thousands) |
Year 2 |
Year 1 |
|
Current liabilities: |
||
|
Current installments on mortgages |
$ 2.747 |
$ 1,402 |
|
Current installments on capital lease obligation |
607 |
-0- |
|
Accounts payable |
12,916 |
15,859 |
|
Accrued sales tax |
1,574 |
1.760 |
|
Other accrued expenses |
1.945 |
3.118 |
|
Deferred income taxes |
303 |
146 |
|
Due to officer |
-0- |
599 |
|
Income taxes payable |
988 |
-0- |
|
Total current liabilities |
$21,080 |
$22,884 |
|
Consolidated Statement of Cash Flows |
||
|
($ in thousands) |
Year 2 |
Year 1 |
|
Cash flows from financing activities: |
||
|
Net increase (decrease) in notes payable |
$ -0- |
$(3,500) |
|
Principal payments on mortgages |
(1,298) |
(1,194) |
|
Principal payments under capital lease obligation |
(214) |
-0- |
|
Proceeds from common stock offering |
-0- |
-0- |
|
Proceeds from exercise of common stock options |
255 |
145 |
|
Repurchase of common stock |
-0- |
(3,383) |
|
Net cash provided by (used in) financing activities |
$(1,257) |
$(7,9’32) |
Required:
- What was the current portion of Potter’s mortgage payable at the end of
- How much did Potter pay in cash to reduce its mortgage payable during
- Explain the difference between your answer to requirement I and your answer to requirement 2.
- What are the components of the current portion of the mortgage payable as of the end of Year 2?
- Assume that the next quarterly’ installment on the industrial development bond is due on March 31 Year 3. Prepare a journal entry to record the installment payment and any interest. Assume that the effective interest rate for the bond is 14% per year.
- The company has a mortgage note payable for $1,794,000 that comes due on April 30, year 3. Suppose that this note is paid by signing of a new 14% note for the amount due. Prepare the April 30 year 3, journal entry to record this refinancing of the old note.
- Instead of refinancing the note, suppose the company pays the principal along with any remaining interest on April 30, year 3. Prepare a journal entry to record this cash payment.
Year 1?
Year 2?
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