Question

On december 31, 2024, l incorporated had a $2,300,000 note payable outstanding, due july 31, 2025. l borrowed the money to finance construction of a new plant. l planned to refinance the note by issuing long-term bonds. because l temporarily had excess cash, it prepaid $580,000 of the note on january 23, 2025. in february 2025, l completed a $3,800,000 bond offering. l will use the bond offering proceeds to repay the note payable at its maturity and to pay construction costs during 2025. on march 13, 2025, l issued its 2024 financial statements. what amount of the note payable should l include in the current liabilities section of its december 31, 2024, balance sheet?

A. $2,300,000
B. $0
C. $1,720,000
D. $580,000

Answer 1

L Incorporated should include $1,720,000 as the current liabilities for the note payable in its December 31, 2024, balance sheet. This represents the note payable amount outstanding after an early prepayment, regardless of the post-year-end refinancing. C is the correct answer.

Step-by-step explanation:

The amount of the note payable that L Incorporated should include in the current liabilities section of its December 31, 2024, balance sheet is $1,720,000.

This is the remaining balance after prepaying $580,000 of the original $2,300,000 on January 23, 2025. Despite the plan to refinance the note by issuing long-term bonds, which was completed in February 2025, the relevant figure for the 2024 balance sheet is the amount outstanding at the end of the year 2024.

To illustrate similar financial principles, consider a simple two-year bond with an 8% interest rate and a principal of $3,000. Using a discount rate equal to the interest rate, the present value of the bond remains at $3,000, showing that the present value of what a borrower receives is the same as what the lender will be repaid.

Changing the discount rate reflects a different present valued assessment of future cash flows.