On October 1, Year 1, Gold Co. borrowed $900,000 to be repaid in three equal, annual installments. The note payable bears interest at 5% annually. Gold paid the first installment of $300,000 plus interest on September 30, Year 2. What amount should Gold report as a current liability on December 31, Year 2?

The amount of current liability will be $307,500

Explanation:

Non- current notes are those notes which are payable in instalments and are recognized as the current to extent any payments which is due in the next year.

The present portion of the note payable on December 31, Year2, comprise of $300,000 of the principal amount.

The current accrued interest is computed as:

=$600,000  × 5%  × 3/12 months

= $7500

The current accrued interest will be added to the amount of the present portion of principal. The aggregate current liability, which amounts to $307,500.

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