At the beginning of the year, your company borrows $24,800 by signing a four-year promissory note that states an annual interest rate of 10% plus principal repayments of $6,200 each year. Interest is paid at the end of the second and fourth quarters, whereas principal payments are due at the end of each year.
How does this new promissory note affect the current and non-current liability amounts reported on the classified balance sheet prepared at the end of the first quarter?

Increase current liabilities by $6280

Increase non-current liabilities by $18,600

Explanation:

Interest Payable = Principal × Interest rate × Time = $24,800 × 0.10 × 3/12

= $620

Current liabilities = Interest payable + Current portion of long-term debt

= $620 + $6,200 = $6,820

Long-term debt = Amount of promissory note - Current portion of long-term debt

= $24,800 - $6,200= $18,600

Increase current liabilities by $6280

Increase non-current liabilities by $18,600

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