Question

# Muffin Company issued a five-year, interest-bearing note payable for \$50,000 on January 1, 2021. Each January...

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: 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.

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