Question

Muffin Company issued a five-year, interest-bearing note payable for $50,000 on January 1, 2021. Each January the company is required to pay $10,000 on the note. How will this note be reported on the December 31, 2022, balance sheet?

A.) Long-term debt, $50,000

b.) Long-term debt, $30,000; Long-term debt due within one year, $10,000

c.) Long-term debt, $40,000

d.) Long-term debt of $40,000; Long-term debt due within one year, $10,000

Answer 1

Answer: b.) Long term debt, $ 30,000; Long-term debt due within one year, $ 10,000.

Explanation:

As on December 31, 2022, the company would have already completed the first payment of $10,000 (i.e on January 1, 2022). As a result the balance of the liability will be $ 40,000 [ $50,000 - $10,000]. However, the payment of the 2nd instalment of $10,000 will be done on January 1, 2023, i.e within a period of one year from the balance sheet date. Hence this $10,000 will be shown as a long-term debt due within one year and the balance of the liability as on December 31, 2022, i.e $ 30,000 [ $ 40,000 - $ 10,000 ] will be shown as long term debt.