Question

On January 2, 2017, Lester Company, a calendar-year company, issued $40,000 of notes payable, of which $5,000 is due on January 2 for each of the next eight years the first payment is due January 2, 2018). The proper balance sheet presentation on December 31, 2017, is

a. Current Liabilities, $40,000.

b. Current Liabilities, $5,000; Long-Term Liabilities, $35,000.

c. Long-Term Liabilities, S40,000.

d. Current Liabilities, $35,000; Long-Term Liabilities, $5,000.

Answer 1

The correct option is C)

Step-by-step explanation:

The $ 40,000 must be recorded in full as at 31st December 2017 given that the first tranch of $5,000 is not yet due until 2nd January 2018.

It may be recognised as follows on December 31st 2018:

Current Liabilities: $5,000

Long-Term Liabilities: $35,000

Because as at that time, the $5,000 would have been paid (all factors remaining constant) while the $35,000 is recognised as payable in future.

Cheers!