Question

On January 1, 2017, ABC Company borrowed $100,000 from the bank. The loan is
a 10-year note payable that requires semi-annual payments of $12,000 every
June 30 and December 31, beginning June 30, 2017. Assume the loan has a 20%
interest rate, compounded semi-annually.

Calculate the amount of the note payable at December 31, 2017 that would be
classified as a current liability.

Answer 1

• All working forms part of the answer
• Working for repayment for 1^st two years:

Payment date		Principal outstanding (A)	Six month interest at 20% (B=A x 20% x 6/12)	Semi Annual Payment (C)	Reduction in principal (D=C – B)	Ending Principal Outstanding (A – D)
30-Jun	2017	$           1,00,000.00	$           10,000.00	$         12,000.00	$             2,000.00	$         98,000.00
31-Dec	2017	$               98,000.00	$             9,800.00	$         12,000.00	$             2,200.00	$         95,800.00
30-Jun	2018	$               95,800.00	$             9,580.00	$         12,000.00	$             2,420.00 [Current Liab]	$         93,380.00
31-Dec	2018	$               93,380.00	$             9,338.00	$         12,000.00	$             2,662.00 [Current Liab]	$         90,718.00

• The above working shows that out of $100,000 of notes payable $4,200 [2000 + 2200] had been repaid till 31 Dec 2017.
• Balance of outstanding Notes payable on 31 Dec 2017 = $95,800
• This above is shows under ‘’Liabilities’’ Section.
• However, the amount of Notes Payable that is to be repaid with the next 1 years period (Short term) is to be classified as “Current Liabilities”
• Hence, Notes Payable to be shown under ‘’Current Liability” will be $5,082 [2420 + 2662]
  Remaining $90,718 will be shown under “Long term Liabilities section.