At the beginning of the year, your company borrows $18,300 by signing a Three-ye

Question

At the beginning of the year, your company borrows $18,300 by signing a Three-year promissory note that states an annual interest rate of 9% plus principal repayments of $6100 each year. Interest is paid at the end of the second and fourth quarters, whereas principal payments are due at the end of each year. How does this new promissory note affect the current and non-current liability amounts reported on the classified balance sheet prepared at the end of the first quarter? O increase current liabilities by $411.75; increase non-current liabilities by $18,300 Increase current liabilities by $1,647; increase non-current liabilities by $18,300 O Increase current liabilities by $6,511.75; increase non-current liabilities by $18,300 Increase current liabilities by $6,511.75; increase non-current liabilities by $12,200

Explanation / Answer

At the end of first quarter, Interest payable = 18300 *0.09 * (1/4) =411.75.

Current portion of Note payable is payable within 12 months = 6100

Total current liability = 6100 + 411.75 = $6,511.75

Non-current liability = (18300 - 6100 ) = $12,200

Answer - Increase current liabilities by $6,511.75; increase non-current liabilities by $12,200

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