Question

At December 31, 2020, Desert Company reports the following balances for its liability accounts:   7% note payable issued 10/1/2020 maturing 9/30/2021   $520,000 8% note payable issued 4/1/2020, payable in 7 equal annual installments of $100,000 beginning 4/1/2021 $700,000   On December 1, 2020, the entire $700,000 balance of the 8% note was refinanced by issuance of a note payable to be paid in a lump sum due 4/1/2027. In addition, on December 10, 2020, Desert began discussions with the bank to refinance the 7% note payable on a long-term basis. No agreement had been reached at December 31, 2020.   What is the amount of the notes payable that should be recorded as a current liability on the December 31, 2020, Balance Sheet? Group of answer choices$620,000 $520,000 $1,220,000 $0 Next

Answer 1

Answer:

Desert Company

The amount of notes payable that should be recorded as a current liability will be $520,000.

Explanation:

The 8% notes payable had been refinanced to a long-term notes payable.  But, the 7% notes payable was still being negotiated for refinancing.  Since the refinancing had not been agreed, the notes payable would still have a balance of $520,000.  However, a note in accounts could state the fact that the notes payable was being negotiated for refinancing.