Riley Company borrowed $30,000 on April 1, Year 1 from the Titan Bank. The note issued by Riley carried a one year term and a 7% annual interest rate. Riley earned cash revenue of $960 in Year 1 and $1,090 in Year 2. Assume no other transactions.
The amount of total liabilities that would appear on Riley's December 31 balance sheets for Year 1 and Year 2, respectively, would be:
Note payable = $30,000
Interest rate = 7%
Date of note issue = April 1, Year 1
Interest payable at December 31, Year 1 = Note payable x Interest rate x 9/12
= 30,000 x 7% x 9/12
= $1,575
Total liabilities at December 31, year 1 = Note payable + Interest payable at December 31, Year 1
= 30,000+1,575
= $31,575
Since note will be paid on April 1, year 2, hence at December 31, year 2, liabilities will be zero.
The amount of total liabilities that would appear on Riley's December 31 balance sheets for Year 1 = $31,575 and year 2 would be zero.
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