Asked by Sarah Hulsey on Jul 15, 2024
Verified
On January 5, Thomas Company, which follows a calendar year, issued $1,000,000 of notes payable, of which $250,000 is due on January 1 each of the next four years. The proper balance sheet presentation on December 31 is
A) Current liabilities, $1,000,000
B) Current liabilities, $250,000; Long-term debt, $750,000
C) Long-term debt, $1,000,000
D) Current liabilities, $750,000; Long-term debt, $250,000
Notes Payable
Short-term or long-term liabilities represented by promissory notes that a company promises to pay back at a future date with interest.
Current Liabilities
Obligations of a company that are due to be paid within one year.
Long-Term Debt
Borrowings and financial obligations lasting over one year that are used to fund a company's operations, investments, or acquisitions.
- Learn about the categorization and approaches to treating current liabilities in financial accounting contexts.
Verified Answer
RP
Ramya Priya RavinuthalaJul 20, 2024
Final Answer :
B
Explanation :
The portion of the notes payable that is due within one year (i.e. $250,000) should be classified as current liabilities on the balance sheet. The remaining portion ($750,000) should be classified as long-term debt. Therefore, the proper balance sheet presentation on December 31 is Current liabilities, $250,000; Long-term debt, $750,000.
Learning Objectives
- Learn about the categorization and approaches to treating current liabilities in financial accounting contexts.
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