Question

On January 5, Thomas Company, which follows a calendar year, issued $1,000,000 of notes payable, of which $250,000 is due on January 1 each of the next four years. The proper balance sheet presentation on December 31 is

Answer 1

Answer:

The December 31 balance sheet should show the following liabilities:

Current liabilities:

Current portion of notes payable $250,000

Long term liabilities:

Notes payable $750,000

Current liabilities include all the liabilities that are due within one year of the presentation of the balance sheet. While long term liabilities include all the liabilities that are due in more than one year.

Even if the total liability is due in more than one year, but a tranche or installment is due within one year, this must be included as current portion of long term liability under current liabilities.  

Answer 2

Answer:

Current Asset:

Cash $750,000

Current Liabilities:

Notes Payable $250,000

Non Current Liabilities:

Notes Payable $750,000

Explanation:

The proper Balance sheet presentation would be recording $250,000 as a current liabilities as the payment will be made within the next 12 months at the December 31 and the remainder $750,000 will go to long term liabilities.

So the balance sheet presentation is as under:

Current Asset:

Cash $750,000

Current Liabilities:

Notes Payable $250,000

Non Current Liabilities:

Notes Payable $750,000