In the note payable example of $1,000,000 with $100,000 in principal payments each year for 10 years, how much is current liability and how much is long-term liability?

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Multiple Choice

In the note payable example of $1,000,000 with $100,000 in principal payments each year for 10 years, how much is current liability and how much is long-term liability?

Explanation:
The key idea is to classify what portion of a note payable is due within the next 12 months as a current liability, with the remainder staying as long-term. Here, the note has a total principal of 1,000,000 and requires 100,000 principal payments each year for 10 years. The amount due in the coming year is 100,000, so that is the current liability. The balance after that, 1,000,000 − 100,000 = 900,000, is not due within the next year, so it is long-term.

The key idea is to classify what portion of a note payable is due within the next 12 months as a current liability, with the remainder staying as long-term. Here, the note has a total principal of 1,000,000 and requires 100,000 principal payments each year for 10 years. The amount due in the coming year is 100,000, so that is the current liability. The balance after that, 1,000,000 − 100,000 = 900,000, is not due within the next year, so it is long-term.

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