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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