Question

On January 1, 2020, Pharoah Company, a calendar-year company, issued $1680000 of notes payable, of which $420000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 2020, is:

a. Long-term debt, $1680000.
b. Current liabilities, $1680000.
c. Current liabilities, $420000; Long-term Debt, $1260000.
d. Current liabilities, $420000; Long-term Debt, $840000.

Answer 1

Option C.

Current liabilities, $420,000;

Long-term Debt, $1,260,000.

Step-by-step explanation:

The reason is that the amount that will be paid within the next 12 is current liabilities, so the amount $420,000 is current liability as it will be paid within the next 12 months. So the remainder of the amount that is not payable in the next 12 months is long term liability.

Long Term Liability = $1,680,000 Total Payable Amount - $420,000 Current Liability

Long Term Liability = $1,260,000