At the beginning of the first quarter,your company borrows $20,000 for four years at 8% interest and has to repay $5,000 of principal each year.Interest is paid at the end of the second and fourth quarters,and the principal is due at the end of the year.How would this information be reported on the balance sheet at the end of the first quarter?
A)$400 as interest expense and $20,000 under long-term debt.
B)$400 as interest payable,$5,000 as current portion of long-term debt under current liabilities,and $15,000 under long-term debt.
C)$1,600 of interest under current liabilities,$5,000 as current portion of long-term debt under current liabilities and $15,000 under long-term debt.
D)$400 as interest payable under current liabilities and $20,000 under long-term debt.

Question

Quizplus · Accepted Answer

At the end of the first quarter, the company has not yet made any payments towards the principal or the interest. Therefore, the entire $20,000 borrowed would be reported under long-term debt. However, interest has accrued for the first quarter and is payable at the end of the second quarter, so it would be reported as interest payable under current liabilities. The principal payments are not due until the end of the year, so they are not yet considered a current liability. Therefore, $5,000 would be reported as the current portion of the long-term debt under current liabilities, and the remaining $15,000 would be reported under long-term debt.

At the Beginning of the First Quarter,your Company Borrows $20,000