Question

Wildhorse 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, Wildhorse declared a cash dividend of $2.50 per share to stockholders of record on December 31. The dividend is payable on January 15, 2021. Wildhorse 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 $106,443,000 are outstanding. The bonds pay 12% interest every September 30 and mature in installments of $26,610,750 every September 30, beginning September 30, 2021.
3.		At December 31, 2019, customer advances were $12,195,000. During 2020, Wildhorse collected $30,380,000 of customer advances; advances of $26,233,000 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 Liability or Long-term Liability
2.		Bonds payable (September 30, 2021 installment)		$enter a dollar amount		select a liability type                                                          Current Liability pr Long-term Liability
		Bonds payable (Other than September 30, 2021 installment)		$enter a dollar amount		select a liability type                                                          Current Liability or Long-term Liability
		Interest payable		$enter a dollar amount		select a liability type                                                          Current Liability or Long-term Liability
3.		Customer advances

Answer 1

1.) Dividend payable- $987,500- current liabilities.

(Liabilities having less than 1 year maturity treated as current liabilities)

2.) i.)  bond payable (instalment) - $26,610,750- current liabilities.

($26,610,750 out of $106,443,000 will be transferred to current liability account and remaining balance will be treated as long term liabilities.)

   ii.)  Bond payable ( interest payable) - $3,193,290 - current liabilities.

($106,443,000*12/100= $12,773,160/4(4th quarter only)= $26,610,750)

3.) Customer advances- $16,342,000 - current liabilities.

Answer 2

1. Dividends payable - $2,375,000 | Current Liability (less than a year)

   Treasury stock does not recieve dividends so:

   (1,000,000 shares - 50,000 shares) * $2.50 dividend = $2,375,000

2. Bonds Payable and Interest

1. Bonds payable (sept, 30 2021 installment) - $26,610,750 | Current Liability

2. Bonds payable (Other than Sept 30, 2021 installment) - $79,832,250 | Long-term Liability

   $106,443,000 outstanding - $26,610,750 installment = $79,832,250

3. Interest payable - $3,193,290 | Current Liability

   Interest is calculated for the current year 2020, so the entire outstanding amount is applied for interest. From Sep 30 -Dec 30 is 3 months, so interest is multiplied by 3/12.

   ( $106,443,000 outstanding * 0.12 interest * 3/12 = $3,193,290)

3. Customer advances - $16,342,000 | Current Liability

   Prior year advances + current year advances -  recognized income = Customer advances liability.