Sterling Inc. has two long-term notes outstanding. One is a five-year note for $50,000. An equal amount of principal must be repaid each year of the loan. The other is a seven-year note for $210,000. In the next calendar year, the company will pay $21,000 of the principal. What is total amount of the notes that will be reported as current liabilities on its balance sheet

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6 May, 17:06

Sterling Inc. has two long-term notes outstanding. One is a five-year note for $50,000. An equal amount of principal must be repaid each year of the loan. The other is a seven-year note for $210,000. In the next calendar year, the company will pay $21,000 of the principal. What is total amount of the notes that will be reported as current liabilities on its balance sheet

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Joanna Morse · Answer 1

The question is missing the below options:

a.$40,000

b.$71,000

c.$229,000

d.$31,000

$31,000, option D is the correct answer as explained below.

Explanation:

The first long-term loan notes provides that an equal amount of principal is repayable every year, which implies that the amount of principal amount repayable is loan value divided by 5 years.

In other words, the principal amount repayable on the first loan notes is $10,000 ($50,000/5 years) per year.

The total amount repayable next year on both loan notes that should be classified as current liabilities this year is $31, 000 ($21000+$10000), since the principal repayment on this second loan notes is $21000