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Q5SE

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Horngren'S Financial And Managerial Accounting
Found in: Page 605

Short Answer

On January 1, Irving Company purchased equipment of $280,000 with a long-term note payable. The debt is payable in annual installments of $56,000 due on December 31 of each year. At the date of purchase, how will Irving Company report the note payable?

Answer

At the time of purchase, $56,000 will be considered as current liability and $224,000 will be considered as long term liability in its balance sheet.

See the step by step solution

Step by Step Solution

Step-by-step solution

Step 1: Accounting treatment to report the note payable”

Generally, notes payable are long-term but the first installment is due within the 12 months, so first installment should be considered as current liability and rest of the amount be considered as long-term liability.

Step 2: Calculation for long-term liability

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