Question

As of December 1, Year 2, a company obtained a $1,000,000 line of credit maturing in 1 year on which it has drawn $250,000, a $750,000 secured note due in 5 annual installments, and a $300,000 3-year balloon note. The company has no other liabilities. How should the company's debt be presented in its classified balance sheet on December 31, Year 2, if no debt repayments were made in December?A. Current liabilities of $500,000; long-term liabilities of $800,000.B. Current liabilities of $400,000; long-term liabilities of $900,000.C. Current liabilities of $1,000,000; long-term liabilities of $1,050,000.D. Current liabilities of $500,000; long-term liabilities of $1,550,000.

Answer 1

Answer:

B) Current liabilities of $400,000; long-term liabilities of $900,000.

Explanation:

Option B, detailed as follows:

$250,000, taken from the bank's credit line that expires in 1 year, therefore, is a current Liability.

$150,000 of Current Liability that comes from the annual installments of the  secured note of $750,000, the other $600,000 is Long Term.

Finally, $300,000, Long Term of 3-year balloon note.

$250,000 + $150,000 = $400,000 Current Liabilities.

$600,000 + $300,000 = $900,000 Long Term Liabilities.