Purdum Farms borrowed $10 million by signing a five-year note on December 31, 2013. Repayments of the principal are payable annually in installments of $2 million each. Purdum Farms makes the first payment on December 31, 2014 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, 2014, 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, 2014, $6 million remains. The next $2 million due within a year is a current liability, and the remaining $4 million is a long-term liability.

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