Question

At December 31, 20x1, Pitchfork Company reports the following balances for its liability accounts:

7% note payable issued Oct. 1, 20x1 maturing Sept. 30, 20x2 $375,000

8% note payable issued Apr 1, 20x1, payable in 6 equal annual installments of $225,000 beginning April 1, 20x2 $900,000

On December 1, 20x1, the entire $900,000 balance of the 8% note was refinanced by issuance of a note payable to be paid in one lump sum due April 1, 20x7. In addition, on December 10, 20x1, Pitchfork began discussions with the bank to refinance the 7% note payable on a long-term basis. No agreement had been reached at December 31, 20x1.

What is the amount of the notes payable that should be recorded as a current liability on the December 31, 20x1, Balance Sheet?

Answer choices:

$375,000

$-0-

$600,000

$1,275,000

Answer 1

The correct answer is (a) i.e.$375,000 as 7% note payable is to be matured on September 30, 20X2 which is within 12 months. Also, the concerned parties have not reached on any agreement in respect of the proposal to refinance 7% note payable on a long term basis. Since, 8% note payable has been refinanced by issuing a note payable, which is to be paid in one lump sum amount on April 1,20X7, that's why it has not been considered within current liability because now it is not supposed to be settled within 12 months, thus excluding it from current liability.