Question

On January 1, 2019, ABC Company borrowed $120,000 from the bank. The loan
is a 7-year note payable that requires annual payments of $24,500 every
December 31, beginning December 31, 2019. Assume the loan has an interest
rate of 10% compounded annually.

Calculate the amount of the note payable at December 31, 2020 that would
be classified as a current liability.

Answer 1

The interest would be accrued every year and would get added up to the notes payable account. The total notes payables as at 31 December 2020 would be as follows :

$	Principal	Interst	Annual payment	Closing
Dec19	1,20,000	12,000	24,500	1,07,500
Dec20	1,07,500	10,750	24,500	93,750

Of the above, only $ 24,500 would be classified as currently liability as that would be the amount that would be paid in the next 1 year.