In: Accounting
On October 1, Year 1, Gold Co. borrowed $900,000 to be repaid in three equal, annual installments. The note payable bears interest at 5% annually. Gold paid the first installment of $300,000 plus interest on September 30, Year 2. What amount should Gold report as a current liability on December 31, Year 2?
Solution: | ||||
$307,500 Gold should report as a current liability on December 31, Year 2 | ||||
Working Notes: | ||||
current liability on December 31, Year 2 will be next 12 month any principal amount payable and interest expense accrued till the year end. | ||||
since, the 1st the installment with interest gas been paid on September 30, principal outstanding = $900,000-300,000= $600,000 and interest on this accrued outstanding principal accrued till December 31st that is for 3 months. | ||||
Next installment principal amount will also be $300,000 as equal annual installment is the term of loan. | ||||
current liability on December 31, Year 2 | ||||
Principal amount due in next 12 month | $300,000 | |||
Interest accrued till December 31st | $7,500 | |||
[$600,000 x 5% x 3/12] | ||||
current liability on December 31, Year 2 | $307,500 | |||
Please feel free to ask if anything about above solution in comment section of the question. |