On the December 31, 2021 balance sheet, the $50,000 note payable should be classified as a $10,000 current liability and a $40,000 long-term liability.
Balance Sheet Classification for a Note Payable
The question asks how to properly classify a note payable on a balance sheet when part of the note is due within a year and the rest is due in subsequent years.
Since the company issued a note payable of $50,000 on December 1, 2021, and will repay $10,000 each year, the correct classification on the December 31, 2021 balance sheet should have two components:
Current liability for the $10,000 that is due within the next year.
Long-term liability for the remaining $40,000 that is due over the following years.
This separation ensures that the balance sheet accurately reflects the obligations that are due in the short term as opposed to those due in the long term.