Question

In Merf's April 30, 2016, balance sheet, a note receivable was reported as a noncurrent asset and the related accrued interest for eight months was reported as a current asset. Which of the following descriptions would fit Merf's receivable classification?

a) Both principal and interest amounts are due on August 31, 2016, and August 31, 2017.
b) Principal is due August 31, 2017, and interest is due August 31, 2016, and August 31, 2017.
c) Principal and interest are due December 31, 2016.
d) Both principal and interest amounts are due on December 31, 2016, and December 31, 2017.

Answer 1

The classification of Merf's receivable can be determined based on the due dates of the principal and interest amounts. Option (b) fits Merf's receivable classification.

Step-by-step explanation:

The classification of Merf's receivable can be determined by analyzing the due dates of the principal and interest amounts. In this case, the note receivable is reported as a noncurrent asset, indicating that the principal is not due within the next year. However, the accrued interest for eight months is reported as a current asset, suggesting that it will be collected within the next year. Based on this information, option (b) fits Merf's receivable classification.