Question

borrowed $10 million by signing a five-year note on December 31, 2015. Repayments of the principal are payable annually in installments of $2 million each. Purdue Farms makes the first payment on December 31, 2016 and then prepares its balance sheet. What amount will be reported as current and long-term liabilities, respectively, in connection with the note at December 31, 2016, after the first payment is made

Answer 1

Answer: $2 million in Current liabilities and $6 million in long-term liabilities

Explanation:

Current liabilities are those obligations that a company owes that will be settled in a period/ year.

The first payment of $2 million in 2016 has already been paid so the total amount remaining on the 31st of December is $8 million.

Of this $8 million, a payment of $2 million will be made in a year in 2017 so this will be recorded as Current liabilities as it is a year from 2016.

The remaining $6 million will be long-term as they will be paid in more than a year being 2018, 2019 and 2020.