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.

Question

Quizplus · Accepted Answer

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.

Purdum Farms Borrowed $10 Million by Signing a Five-Year Note