Question

Purdum Farms borrowed $24 million by signing a five-year note on December 31, 2017. Repayments of the principal are payable annually in installments of $4.8 million each. Purdum Farms makes the first payment on December 31, 2018 and then prepares its balance sheet. What amount will be reported as current and long-term liabilities, respectively, in connection with the note at December 31, 2018, after the first payment is made?

Answer 1

The amount of $4.8 million will be reported as current liabilities on 31 December 2018 and the amount of $14.4 will be reported as long term liabilities.

Step-by-step explanation:

The current liabilities are the short term liabilities or obligations that a business is expected to pay or settle within a year's time period. The long term liabilities, on the other hand, are the liabilities or obligations which are due to be paid any time more than a year.

The outstanding amount on Note Payable on 31 December 2018 after the first repayment will be, 24 - 4.8 = $19.2 million

Out of the $19.2 million that is outstanding, $4.8 million are to be paid on 31 December 2019 that is within a year. Thus, this amount will be reported as a current liability as it is payable within a one year period.

The remaining amount of 19.2 - 4.8 = $14.4 million will be reported as a non current liability as it is payable after more than a year from today.