Riley Company borrowed $36,000 on April 1, Year 1 from Titan Bank. The note issued by Riley carried a one-year term and a 7% annual interest rate. Riley earned cash revenues of $1,700 during Year 1 and $1,400 during Year 2. Assume no other transactions. Based on this information alone, what are the amounts of total liabilities that would appear on Riley's December 31 balance sheets for Year 1 and Year 2, respectively?
A)$36,000 and $0
B)$37,890 and $0
C)$37,890 and $38,520
D)$1,890 and $630

Question

Quizplus · Accepted Answer

The total liability on December 31, Year 1, is the principal amount of $36,000 plus the accrued interest for 9 months (April to December) which is $36,000 * 7% * (9/12) = $1,890, totaling $37,890. By December 31, Year 2, the note is paid off, so the liability is $0.

Riley Company Borrowed $36,000 on April 1, Year 1 from Titan