Question

On January 1, 2019, ABC Company borrowed $100,000 from the bank. The loan is a 15-year note payable that requires annual payments of $13,000 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, 2021 that would be classified as a current liability.

Answer 1

Answer)

Principal repayment is excess of interest paid in the installment.

A portion of long term debt is treated as current liability when such repayment becomes due in the next 1 year period.

Hence,the current liability:

Prinicipal repayment for 31 December 2019:

$13000-($100000×10%)=$3000

Prinicipal repayment for 31 December 2020:

($13000-($100000-$3000)×10%)

=$3300

Principal repayment of note payable which is treated in current liability:

$13000-($100000-$3300-$3000)×10%

=$3630