Question

On January 1, 2019, ABC Company borrowed $120,000 from the bank. The loan is a 7-year...

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.

Homework Answers

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.

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