Asked by Johnny Gomez on Apr 24, 2024
Verified
Purdum Farms borrowed $10 million by signing a five-year note on December 31,2017.Repayments of the principal are payable annually in installments of $2 million each.Purdum Farms makes the first payment on December 31,2018 and then prepares its balance sheet.What amount will be reported as current and long-term liabilities,respectively,in connection with the note at December 31,2018,after the first payment is made?
A) $2 million in current liabilities and $8 million in long-term liabilities.
B) $2 million in current liabilities and $6 million in long-term liabilities.
C) Zero in current liabilities and $8 million in long-term liabilities.
D) Zero in current liabilities and $10 million in long-term liabilities.
Current Liabilities
A company's debts or obligations that are due to be settled within one fiscal year or the operating cycle, whichever is longer.
Long-Term Liabilities
Financial obligations of a company that are due beyond one year from the balance sheet date.
- Comprehend how to classify and report current and non-current liabilities in the balance sheet.
Verified Answer
CB
Cassandra Bryan7 days ago
Final Answer :
B
Explanation :
After the first payment of $2 million on December 31, 2018, Purdum Farms will have $8 million remaining on the note. The next installment of $2 million due within a year (by December 31, 2019) is classified as a current liability, and the remaining $6 million payable in the subsequent years is classified as a long-term liability.
Learning Objectives
- Comprehend how to classify and report current and non-current liabilities in the balance sheet.