Wize University Introduction to Financial Accounting Textbook > Current Liabilities
Current Portion of Long-term Debt
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Current Portion of Long-term Debt
A long-term liability is one that is due in more than 12 months, this is also referred to as non-current. If a portion of that debt must be paid within 12 months, we refer to this as the current portion of the long-term debt.
- Only refers to the portion due in the next 12 months
- Portion is transferred out of the non-current liability (debit) and transferred to a current liability (credit)
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Example: Current Portion of Long-term Debt
Smith's Corporation produces grilling equipment for home use. It currently operates in New Mexico but wishes to expand nationwide. To do so, the company borrows $2,000,000 from their bank on January 1st, 2025. The bank's terms are that the loan will be repaid annually under these terms:
- $200,000 in principal
- Interest on the remaining balance at a rate of 8%
- Payments made every January 1st for 10 years
- What is the outstanding balance on the loan on December 31st, 2025?
- Prepare the journal entries related to the note on December 31st, 2025.
Journal entry to record the accrual of interest
Journal entry to record the current-portion of long-term debt
- Prepare the journal entry to record the first annual payment on January 1st, 2026.
Practice: Current Portion of Long-term Debt
Delta Ltd. just took a bank loan of $240,000 on March 1st, 2024. The loan is to be repaid in annual payments of $60,000 plus interest accrued on the unpaid balance at a rate of 6% on every anniversary date of the loan.
What amount would appear under the current portion of long-term debt on the December 31st, 2024 balance sheet?