Question

A company purchased a building for $900,000 by obtaining a 30-year mortgage payable. Assume the lending arrangement specifies that the company will pay $20,000 of the principal over the first year, $30,000 in the second year, and the remainder evenly over the final 28 years. What amount of the $900,000 would be classified as a long-term liability at the time the mortgage payable is obtained

Answer 1

Answer:

A total of $880,000 would be classifiad as a long-term liability.

Explanation:

Long-term liabilities are also known as non-current liabilities.

Long-term liabilities consist of all the liabilities that are not due within a year, in other words, that can be paid off for a period of time longer than six months.

In this case, only $20,000 of principal of a total of $900,000 are paid over the first year. The remaining principal payment of $880,000 (plus any interest), is to be paid over the next 29 years, and for this reason, these payments will be recorded in the balance sheet as long-term or non-current liabilities.