On October 1 Year 1 Gold Co borrowed 900000 to be repaid in

On October 1, Year 1, Gold Co. borrowed $900,000 to be repaid in three equal, annual installments. The note payable bears interest at 5% annually. Gold paid the first installment of $300,000 plus interest on September 30, Year 2. What amount should Gold report as a current liability on December 31, Year 2?

Solution

Solution: $307,500 Gold should report as a current liability on December 31, Year 2 Working Notes: current liability on December 31, Year 2 will be next 12 month any principal amount payable and interest expense accrued till the year end. since, the 1st the installment with interest gas been paid on September 30, principal outstanding = $900,000-300,000= $600,000 and interest on this accrued outstanding principal accrued till December 31st that is for 3 months. Next installment principal amount will also be $300,000 as equal annual installment is the term of loan. current liability on December 31, Year 2 Principal amount due in next 12 month $300,000 Interest accrued till December 31st $7,500 [$600,000 x 5% x 3/12] current liability on December 31, Year 2 $307,500 Please feel free to ask if anything about above solution in comment section of the question.