Question

On December 1, 2018, your company borrowed $39,000, a portion of which is to be repaid each year on November 30. Specifically, your company will make the following principal payments: 2019, $5,200; 2020, $7,800; 2021, $10,400; and 2022, $15,600. Show how this loan will be reported in the December 31, 2019 and 2018 balance sheets, assuming principal payments will be made when required.

Answer 1

Answer:

Year 2018 -Total Current liabilities = $39,000

Year 2019 - Total Current liabilities = $33,800

Explanation:

Year 2018

Current liabilities:

Current Portion of the long term debt = $5,200

Add:

Long term debt = $33,800

Total Current liabilities = $39,000

Year 2020

Current liabilities:

Current Portion of the long term debt = $7,800

Add:

Long term debt = $26,000

Total Current liabilities = $33,800

On December 31, 2019, $5,200 of the loan will be stated as the Current  liabilities as it is due on November 30, 2020, which is within a year. The remaining portion of the loan will be stated as the long term debt because it is not due within the year from the date of balance sheet.

On  December 31, 2020, $33,800 of the balance outstanding ($5,200 repaid on November 30, 2020). Out of which $7,800 is due on November 30, 2021. So, $7,800 will be stated as current liability and the balance amount $26,000will be as long term debt.