Question

On July 1, 2013 Avery services issued a 4% long-term note payable for $10,000. It is payable over a five-year term in $2000 principal installments on July 1 of each year. Which of the following and trees need to be made at July 1, 2013 to re-classify the current portion of the note?

a.) Long term notes payable $2000, cash $2000

b.) current portion of long term notes payable $2000, long-term notes payable $2000

c.) Long term notes payable $2000, accounts payable $2000

d.) Long term notes people $2000, current portion of long-term notes payable $2000

how do you calculate and record this????

Answer 1

When a long term note payable is issued, the entry will be:

Cash Dr $10,000

To Long term note payable. $10,000

(To record issue of long term note payable)

The current portion of long term debt is the unpaid principal amount which is accrued in a company's operating cycle and has to be paid within 12 months. Here, the 1st $2,000 installment will be paid in the 12 months and hence, is the current portion of long-term notes payable.

The entry that need to be made at July 1, 2013 to re-classify the current portion of the note is:

Long term notes people Dr. $2000

To Current portion of long-term notes payable    $2000

(To record the re-classification of the current portion of the note)

Answer is d.) Long term notes people $2000, current portion of long-term notes payable $2000