In October,you sign a note for $50,000 in order to buy new equipment.The note is due in five years,at 8% annual interest.Semiannual interest payments are due each March and September.Assuming no other long-term debt,what is the initial balance in the related long-term debt account?
A) $46,000
B) $50,000
C) $52,000
D) $54,000

Question

Quizplus · Accepted Answer

The initial balance in the long-term debt account would be equal to the face value of the note, which is $50,000. The semiannual interest payments would be:

March Payment = ($50,000 x 0.08 x 6/12) = $2,000
September Payment = ($50,000 x 0.08 x 6/12) = $2,000

Therefore, the total interest payments for the year would be $4,000, which would be recorded as an expense and reduce the balance in the long-term debt account accordingly. However, since the question only asks for the initial balance in the account, the answer is simply the face value of the note, which is $50,000.

In October,you Sign a Note for $50,000 in Order to Buy