Need help with accounting please- long term liabilities?

Question

Heres the problem, i just dont know where to get started on it...

Assume that on Dec.1,2005 your company borrowed $14000, a portion of which is to be repaid each year on Nov.30. Specifically your company will make the following principle payments: 2006, $2000; 2007,$3000; 2008,$4000; and 2009,$5000. Show how this loan will be reported in the Dec. 31, 2006 and 2005 balance sheets, assuming that principal payments will be made when required.

Thanks, any help at all is appreciated.

Answer 1

Original loan Dec 1, 2005 - $14,000. 1st repayment Nov 30, 2006 - $2,000.

Dec 31, 2005 balance sheet:
Non-current liabilities
Long-term loan $12,000
Current liabilities
Current portion of L-T loan $2,000

Dec 31, 2006 balance sheet:
Non-current liabilities
Long-term loan $9,000
Current liabilities
Current portion of L-T loan $3,000

Since you have the loan repayment schedule, you know the amount which is due within the next 12 mths. That will be the current portion of the long-term loan.

Answer 2

Been a long time, but...assuming the accounting equation Assets = Liabilities + Owner's Equity:

Dec. 31, 2005 -
Cash +$14,000 and Long Term Debt +$14,000

Dec. 31, 2006 -
Cash $14,000 (-$2,000) and Long Term Debt $14,000 (-$2,000).

I totally left out interest expense, which would need to be figured and allocated based on the interest rate. You can back calculate that based on payment schedule.

I know this is an incomplete answer, but I hope it helps a little.

Answer 3

The key is the definition of long-term and short-term debt. Short-term debt is that amount of principal due within the (following) fiscal year. The the remaining principal balance is long-term.

Accrued but unpaid interest (which should be on the balance sheet) is not part of the question.

Answer 4

Dr. Cash Cr. Loans Payable interest? terms?

Answer 5

What is the interest rate?