A note payable to the Bank of the Philippine Islands for P2,400,000 is outstanding on December 31, 2017. The note is dated October 1, 2016, bears interest at 18%, and is payable in three equal annual installment of P800,000. The first interest and principal payment was made on October 1, 2017. What amount should be reported as current liability in the December 31, 2017 balance sheet?
1600000
To determine the amount that should be reported as a current liability on the December 31, 2017 balance sheet, we need to calculate the remaining principal balance that is due within one year from that date.
Step 1: Calculate the principal balance remaining after the first principal payment:
Principal balance = Principal amount - First principal payment
Principal balance = P2,400,000 - P800,000
Principal balance = P1,600,000
Step 2: Determine the current portion of the remaining principal balance:
Since the note is payable in three equal annual installments, each installment is P800,000. The first payment was made on October 1, 2017, so there are two remaining payments due within one year from December 31, 2017.
Current portion of principal balance = Remaining principal balance / Number of remaining payments
Current portion of principal balance = P1,600,000 / 2
Current portion of principal balance = P800,000
Step 3: Calculate the current interest payable:
Interest payable = Principal balance * Interest rate
Interest payable = P1,600,000 * 18%
Interest payable = P288,000
Step 4: Calculate the total current liability:
Total current liability = Current portion of principal balance + Current interest payable
Total current liability = P800,000 + P288,000
Total current liability = P1,088,000
Therefore, the amount that should be reported as a current liability in the December 31, 2017 balance sheet is P1,088,000.
To find the amount that should be reported as a current liability in the December 31, 2017 balance sheet, we need to consider the portion of the note payable that is due within one year from that date.
First, let's break down the note payable:
Principal amount: P2,400,000
Interest Rate: 18%
Installments: Three equal annual installments of P800,000
Date of the note: October 1, 2016
First payment made: October 1, 2017
Since the note payable is dated October 1, 2016, and the first payment was made on October 1, 2017, only two equal annual installments are yet to be paid (October 1, 2018, and October 1, 2019).
To determine the current liability amount, we need to calculate the principal portion of the next two payments that will be due within one year (before December 31, 2018).
Principal portion of each installment: P800,000
Principal left after the first payment: P2,400,000 - P800,000 = P1,600,000
Principal portion left after the first payment: P800,000 (since the installment is P800,000)
Principal portion due within one year: P800,000
Since two installments are yet to be paid, the total principal portion due within one year is P1,600,000 (P800,000 x 2).
Therefore, the amount that should be reported as a current liability in the December 31, 2017 balance sheet is P1,600,000.