Question

Harold is the chief financial officer of a software company. He takes a loan on behalf of the company for one million dollars. The company has to pay an annual interest of 2.5 percent on the loan. Under which accounting head will the company record the interest payable on the loan every year?

Answer 1

Current liabilities

Step-by-step explanation:

Current liability is defined as the financial obligation that a business has to pay to others that falls within a year. It is usually represented as accounts payable or short term debt.

In this scenario a loan was taken and the annual interest rate to be paid is 2.5%. this shows that there is a short term liability on the interest being paid to service the loan.

On the other hand long term liabilities are those that a business owes that comes due in more than a year

Answer 2

The options are given below:

A. Long term disabilities

B. Fixed assets

C. Current liabilities

D. Current assets

E. Income

The answer is C.

Step-by-step explanation:

Current liabilities refer to the obligations or debts owed by an organization, and which are due within a year or within the normal functioning cycle.

Current liabilities usually appear on the Balance Sheet of an organization and they include:

- accounts payable,

- accrued liabilities,

- short-term debt, and

- other similar debts.

Therefore, in the scenario presented above, the annual interest of 2.5 percent qualifies as a current liability, because it is due to be paid annually.