On July 1,2014,Martinez Manufacturing Co.issued a five-year note payable with a face amount of $250,000 and an interest rate of 10 percent.The terms of the note require Martinez to make five annual payments of $50,000 plus accrued interest,with the first payment due June 30,2015.With respect to the note,the current liabilities section of Martinez' December 31,2014,balance sheet should include

Question

Quizplus · Accepted Answer

As of December 31, 2014, Martinez Manufacturing Co. would have accrued six months worth of interest on the note payable. Therefore, the current liabilities section of the balance sheet should include the accrued interest, which is calculated as:

$250,000 x 10% x 6/12 = $12,500

In addition to the accrued interest, Martinez is also required to make the first payment on the note payable by June 30, 2015. Since this payment falls within one year of the balance sheet date, it should also be classified as a current liability. The first payment is $50,000, so the total current liability related to the note payable is:

$12,500 + $50,000 = $62,500

Therefore, the correct answer is C) $62,500.