Summerside Inc.has a term loan outstanding of $500,000 with an interest rate of 8%.They make interest payments quarterly, and the last one was November 30, 2013.They will start making payments on the loan in 2014 and will repay it in 10 equal annual instalments.What amount would be reported on their December 31, 2013, balance sheet related to the loan? $$\begin{array} { l r r }
& \begin{array} { r }
\text { Current } \
\text { Liabilities }
\end{array} & \begin{array} { r }
\text { Long-term } \
\text { Liabilities }
\end{array} \
\text { A) } & \$ 0 & \$ 500,000 \
\text { B) } & \$ 3,333 & \$ 500,000 \
\text { C) } & \$ 53,333 & \$ 450,000 \
\text { D) } & \$ 60,000 & \$ 450,000\
\end{array}$$

Question

Summerside Inc.has a term loan outstanding of $500,000 with an interest rate of 8%.They make interest payments quarterly, and the last one was November 30, 2013.They will start making payments on the loan in 2014 and will repay it in 10 equal annual instalments.What amount would be reported on their December 31, 2013, balance sheet related to the loan? $$\begin{array} { l r r } 
& \begin{array} { r } 
\text { Current } \
\text { Liabilities }
\end{array} & \begin{array} { r } 
\text { Long-term } \
\text { Liabilities }
\end{array} \
\text { A) } & \$ 0 & \$ 500,000 \
\text { B) } & \$ 3,333 & \$ 500,000 \
\text { C) } & \$ 53,333 & \$ 450,000 \
\text { D) } & \$ 60,000 & \$ 450,000\
\end{array}$$

Quizplus · Accepted Answer

Since Summerside Inc. will start repaying the loan in 2014 with 10 equal annual installments, the first installment due within a year is considered a current liability. The loan amount is $500,000, so each installment is $50,000 ($500,000 / 10). Additionally, the interest for one quarter is $10,000 (8% of $500,000 = $40,000 annual interest; $40,000 / 4 = $10,000). Since the last interest payment was on November 30, 2013, the interest for one quarter (up to the end of December 2013) would be accrued and also considered a current liability, making the total current liability $60,000 ($50,000 + $10,000). The remaining balance of the loan, which is $450,000 ($500,000 - $50,000), is considered a long-term liability.

Summerside Inc A)Option a B)Option B C)Option C D)Option D

Summerside Inc A)Option a
B)Option B
C)Option C
D)Option D