On January 2, 2018, Keystone Company borrowed $60,000 from Bank Three. The loan was to be repaid in equal principal installments of $10,000, payable on December 31 of each year, beginning on December 31, 2018. Disregarding interest, the amount of the $60,000 loan that should be considered a long-term liability on the company's balance sheet for the year ended December 31. 2019 would be:

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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**Loan Repayment and Long-term Liability Calculation**

On January 2, 2018, Keystone Company borrowed $60,000 from Bank Three. The loan was structured to be repaid in equal principal installments of $10,000, payable on December 31 each year, starting on December 31, 2018. Disregarding interest, the task is to determine the amount of the $60,000 loan that should be considered a long-term liability on the company's balance sheet for the year ending December 31, 2019.

**Options:**

- $30,000
- $40,000 (Correct Answer)
- $50,000
- $20,000
- None of the above

### Explanation:

The loan amount on the balance sheet is divided into short-term and long-term liabilities. As of December 31, 2019, Keystone Company would have made two payments of $10,000 each (on December 31, 2018, and December 31, 2019), reducing the principal.

**Remaining Principal Balance:**
- Original Loan: $60,000
- Payments Made by End of 2019: $20,000 (2 payments of $10,000)
- Remaining Loan Balance: $60,000 - $20,000 = $40,000

Thus, $40,000 would be classified as a long-term liability at the end of 2019.
Transcribed Image Text:**Loan Repayment and Long-term Liability Calculation** On January 2, 2018, Keystone Company borrowed $60,000 from Bank Three. The loan was structured to be repaid in equal principal installments of $10,000, payable on December 31 each year, starting on December 31, 2018. Disregarding interest, the task is to determine the amount of the $60,000 loan that should be considered a long-term liability on the company's balance sheet for the year ending December 31, 2019. **Options:** - $30,000 - $40,000 (Correct Answer) - $50,000 - $20,000 - None of the above ### Explanation: The loan amount on the balance sheet is divided into short-term and long-term liabilities. As of December 31, 2019, Keystone Company would have made two payments of $10,000 each (on December 31, 2018, and December 31, 2019), reducing the principal. **Remaining Principal Balance:** - Original Loan: $60,000 - Payments Made by End of 2019: $20,000 (2 payments of $10,000) - Remaining Loan Balance: $60,000 - $20,000 = $40,000 Thus, $40,000 would be classified as a long-term liability at the end of 2019.
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