Question

On January 1, 2017, Howard Corporation signed a $500,000, 6%, 5-year mortgage note that is payable in annual installments of $118,698 every January 1. On December 31, 2017, the unpaid principal balance should be reported as

A : a $118,698 current liability and a $381,302 long-term liability.  

B : a $500,000 current liability.

C : a $88,698 current liability and a $411,301 long-term liability.

D : a $500,000 long-term liability.

Answer 1

Correct answer--- (C) a $88,698 current liability and a $411,301 long-term liability.

$88,698 is payable within next year (first day of next year to be precise) that is why it will be reported as current liability and rest long term mortgage will still be shown as long term liability.

Mortgage repayment schedule

Year	Installments	Principal due	Interest Payment	Principal Payment	Total Due
1	$ 118,698	$ 500,000	$     30,000	$     88,698	$ 411,301
2	$ 118,698	$ 411,301	$     24,678	$     94,020	$ 317,281
3	$ 118,698	$ 317,281	$     19,037	$     99,661	$ 217,620
4	$ 118,698	$ 217,620	$     13,057	$   105,641	$ 111,979
5	$ 118,698	$ 111,979	$       6,719	$   111,979	$             (0)