On January 1, 201X, Keisler company, a calendar-year company, issued $400,000 of
ID: 2468746 • Letter: O
Question
On January 1, 201X, Keisler company, a calendar-year company, issued $400,000 of notes payable, of which $100,000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 201X, is
Question 4 options:
Current Liabilities, $400,000
Current Liabilities, $300,000; Long-term Debt, $100,000
Current Liabilities, $100,000; Long-term Debt, $300,000
Long-Term Debt, $400,000
Current Liabilities, $400,000
Current Liabilities, $300,000; Long-term Debt, $100,000
Current Liabilities, $100,000; Long-term Debt, $300,000
Long-Term Debt, $400,000
Explanation / Answer
Current Liabilities, $100,000; Long-term Debt, $300,000 (which is Option C)
_________
Explanation:
As per the accounting rules, the value of notes payable (debt) due within 1 year of the balance sheet date is treated as current liability. In the given case, $100,000 is immediately due on 1st January after the balance sheet date. Therefore, we will consider this amount as current liability even though it is a part of long term debt. The remaining balance of $300,000 is not due within 1 year and will, therefore, be considered as long term debt. Both of these amounts will be reported as liabilities in the balance sheet for the year ending on December 31, 201X.