Question

Accounting for long-term notes payable transactions

Consider the following note payable transactions of Caleb Video Productions.

2018

Oct. 1 Purchased equipment costing \(80,000 by issuing a five-year, 8% note

payable. The note requires annual principal payments of \)16,000 plus

interest each October 1.

Dec. 31 Accrued interest on the note payable.

2019

Oct. 1 Paid the first installment on the note.

Dec. 31 Accrued interest on the note payable.

Requirements

1. Journalize the transactions for the company.

2. Considering the given transactions only, what are Caleb Video Productions’ total

liabilities on December 31, 2019?

Short answer

The total liabilities of the company are $65,280

Step-by-step solution

Definition of interest payable

The interest payable is the short-term liabilities which arises due to unpaid amount of the interest in the books of accounts.

Balance sheet

Caleb Video Productions
Balance Sheet
As of December 31, 2019
Current Liabilities
Interest Payable	$1,280
Non-Current Liabilities
8% Notes Payable ($80,000 - $16,000)	$64,000
Total Liabilities		$65,280