Need step by step explanation for the following A company bo

Need step by step explanation for the following:

A company borrowed $10 million by signing a 5-year note on 12/31/16. Repayment of the principal are payable annually in installments of $2 million each. The company makes its first principal payment on 12/31/17 and then prepares its balance sheet. Determine what amount will be reported as current and long-term liabilities respectively at 12/31, after the first payment is made.

Solution

Amount borrowed is $ 10 million

Annual instalment of $ 2 million for 5 years. It means only principle amount is repaid.

After first payment of $ 2 million, the principle outstanding is $ 8 million in total, out of which $ 2 million is due in next year within 12 months.

Therefore, the liabilities to be shown in balance sheet after first payment is as under:

Current liabilities (Notes payable): $ 2 million

Long term liabilities (Notes payable): $ 6 Million