A note payable with an original maturity of five years will be classified on the balance sheet as...

Question:

A note payable with an original maturity of five years will be classified on the balance sheet as a long-term liability until it matures.

True

False

Explain.

Note Payable

Note payable is a fixed income instrument also referred to as a promissory note. It is a promise by the issuer to the holder to pay a sum of amount either periodically or as a lump sum at a future date or on demand.

Answer and Explanation:

False

The note payable will be classified as a long-term liability until the end of four years, the last year(5th year) it will be classified as a current liability since it will be due within the year.

Any liability that is payable within the year is classified as current or short-term liability while any liability that does not fall due within the year is classified as non-current or long-term liability.


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Long-Term Debt: Definition, Cost & Formula

from Financial Accounting: Help and Review

Chapter 8 / Lesson 7
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