Question

On January 1, Year 1, Renquist Corp. borrowed $100,000 by signing a 5-year note payable with annual interest of 8%. The terms of the contract require Renquist to repay the principal over 5 years with a payment of $20,000 made at the end of each year. On December 31, Year Renquist made the first payment plus interest On January 1 Year 2. what portion of the note should be classified as noncurrent liabilities? O $60,000 O $20,000 O $80,000 O $100,000

Answer 1

Note payable balance on January 1, year 1 = $100,000

Note is to be repaid in 5 annual installment of $20,000 each to be paid at the end of each year.

Note payable repaid on Dec 31, year 1 = $20,000

Note payable balance on Jan 1, year 2 = $100,000 - 20,000

= $80,000

Out of $80,000 note payable $20,000 is to be repaid on Dec 31, year 2, hence $20,000 represents a current liabilities.

When a liability is payable in the next 12 months, it become a current liability.

Hence $60,000 ($80,000 - $20,000 of note payable is the non current liability.)

First option is the correct option.

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