On July 1, 2020, a company borrows $500,000 under a long-term loan. The $500,000 will be...

On July 1, 2020, a company borrows $500,000 under a long-term loan. The $500,000 will be paid back in five annual instalments of $100,000 each, starting on June 30, 2021. What will be the company's long-term loan balance, shown in the long-term liability section of its statement of financial position, at December 31, 2021?

a)$400,000.

b)$350,000.

c)$300,000.

d)Cannot tell, as the interest rate on the loan has not been provided

Solutions

Expert Solution

as per current liabilities definition, debt or liability that is due within 12 months period of balance sheet date is termed as current liabilities, it also includes current portion of long term debt that is due within 1 year period, that clearly shows that any debt that becomes due or matured after 12 months is comes under long term debt.

One more point to be noted here that here only debt related principal portion is counted and not interest portion that becomes due and payable, since its separately reported under interest payable head.

Now we classify the current case:

Loan taken on July 1, 2020 = $500,000,

Repayable in 5 equal installment starting from June 30, 2021

Due	Amount	due Date
1 st installment	$100,000	June 30, 2021
2 nd installment	$100,000	June 30, 2022
3 rd installment	$100,000	June 30, 2023
4 th installment	$100,000	June 30, 2024
5 th installment	$100,000	June 30, 2025

As on Dec 31, 2021 only 1 instllment due on June 30, 2022, within 1 year period from dec 31, 2021, Balance installment of (3, 4, 5) will be termed as long term liability, so ans will be $300,000 option C

ekkarill92 answered 1 year ago

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