Question

In: Accounting

Hoover Company signs a four month promissory note for $ 270,000 on January​ 31, 2016. The...

Hoover Company signs a four month promissory note for $ 270,000 on January​ 31, 2016. The company is required to pay $ 67, 500 on the note each month. The first payment is on February​ 1, 2016, and the final payment is on May​ 1, 2016. How will this note be reported on the balance sheet at January​ 31, 2016?

Solutions

Expert Solution

  • We should know that Current Liabilities are those liabilities that are required to be paid in near future (within a year).

Current Liabilities are shown under ‘Liabilities’ on the Balance Sheet.

  • Also, note that if there is a Long Term liability payable (repayable after 1 year), then that portion of debt that is repayable after 1 year is classified under “Long Term Liabilities” while that portion that is repayable within year is classified under “Current Liabilities”.
  • In the given question, the Note (payable) is of $ 270,000

--Monthly payment = $ 67,500

--This means that full Note Payable will be repaid in 4 months (67500 x 4 =270000)

--Since whole of the amount of Notes Payable is to be made within a year (and a very near future), this Note will be reported on the Balance Sheet at $ 270,000 under “Current Liabilities” heading of “Liabilities” on Balance Sheet at January 31, 2016.


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