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?

a. $60,000
b. $20,000
c. $80,000
d. $100,000

Answer 1

Answer: $60,000

Step-by-step explanation:

The portion of the note that should be classified as noncurrent liabilities will be calculated thus:

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

Since 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, the note payable repaid on December 31, year 1 will be $20,000

Therefore, the note payable balance on Jan 1, year 2 will then be:

= $100,000 - 20,000

= $80,000

Therefore, from the $80,000 note payable, $20,000 will represent current liabilities. Hence, the non current liabilities will be:

= $80000 - $20000

= $60000