{"id":4013,"date":"2020-10-24T15:46:55","date_gmt":"2020-10-24T15:46:55","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-financialaccounting\/?post_type=chapter&#038;p=4013"},"modified":"2020-11-17T18:37:55","modified_gmt":"2020-11-17T18:37:55","slug":"long-term-financing-options","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/chapter\/long-term-financing-options\/","title":{"raw":"Long-Term Financing Options","rendered":"Long-Term Financing Options"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\">Evaluate the alternatives for financing on a long-term basis<\/li>\r\n<\/ul>\r\n<\/div>\r\nA company uses various kinds of debt to finance its operations. Two major classifications of long-term debt are:\r\n<ul>\r\n \t<li style=\"font-weight: 400;\"><strong>Secured:<\/strong> A debt obligation is considered secured if creditors have recourse to the assets of the company on a proprietary basis or otherwise ahead of general claims against the company. You may be most familiar with this debt in terms of either a mortgage on a house or an auto loan. Big companies can secure debt with a variety of assets, from accounts receivable to inventory to fixed assets.<\/li>\r\n<\/ul>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\"><strong>Unsecured:<\/strong> Unsecured debt comprises financial obligations, where creditors do not have recourse to the assets of the borrower to satisfy their claims. The general public has access to this kind of debt in the form of credit cards and personal loans. As you may be aware, the risk is substantially higher, and therefore the interest rate is higher.<\/li>\r\n<\/ul>\r\n<strong><img class=\"alignright wp-image-4953 size-medium\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/02213052\/stock-exchange-738671_1280-300x201.jpg\" alt=\"The stock exchange.\" width=\"300\" height=\"201\" \/><\/strong>In addition to being either secured or unsecured, debt could be classified as:\r\n<ul>\r\n \t<li style=\"font-weight: 400;\"><strong>Private:<\/strong> Private debt is usually held by a bank or other commercial lender.<\/li>\r\n \t<li style=\"font-weight: 400;\"><strong>Public:<\/strong> Public debt is a general definition covering all financial instruments freely tradeable on a public exchange or over the counter, with few if any restrictions, and include bonds and commercial paper.<\/li>\r\n<\/ul>\r\nA basic loan or \u201cterm loan\u201d is the simplest form of debt. It consists of an agreement to lend a fixed amount of money, called the principal sum, for a fixed period of time, with the amount to be repaid by a certain date (balloon) or in installments (amortized), plus interest.\r\n<div class=\"textbox examples\">\r\n<h3>Examples<\/h3>\r\nYourCo needs $100,000 for long-term expansion plans that include some remodeling, the purchase of a competitor, and other capital and infrastructure improvements. YourCo has an extremely good credit rating and credit history with the bank.\r\n<h4>Alternative 1<\/h4>\r\nYourCo borrows $100,000 from the bank on December 1 of 20X1 at 12% interest with interest-only payments monthly for 8 years, the last interest payment and principal balance due on December 1 of 20X9.\r\n\r\nMonthly interest payments will be $1,000, and the ending principal balance will be $100,000.\r\n<h4>Alternative 2<\/h4>\r\n<img class=\"alignright wp-image-4955 size-medium\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/02213320\/analytics-3265840_1920-300x122.jpg\" alt=\"A woman on a laptop sitting next to a bar graph. There is an arrow above the bars pointing in an upward direction.\" width=\"300\" height=\"122\" \/>\r\n\r\nYourCo borrows $100,000 from the bank on December 1 of 20X1 at 12% interest (compounded monthly) with principal and interest due on December 1 of 20X9.\r\n\r\nMonthly payments will be $0, and the ending principal and interest balance will be $259,927.29. You could find this amount on a future value table, using 96 periods (8 years, interest is compounded monthly) and a rate of 1% (12% annually divided by 12 months), or you could use a formula: principle \u00d7 (1+i)^n.\r\n\r\nThat would be $100,000 \u00d7 1.0196 = 100000 \u00d7 2.599272925559384\u2026\r\n\r\nWhich is a total of $259,927.29.\r\n\r\nOr, you could create a running calculation on a spreadsheet like this:\r\n<div align=\"left\">\r\n<table class=\"&quot;fin-table\">\r\n<tbody>\r\n<tr>\r\n<th colspan=\"2\" scope=\"col\">Month<\/th>\r\n<th scope=\"col\">Beg. Bal.<\/th>\r\n<th scope=\"col\">Interest<\/th>\r\n<th scope=\"col\">Ending Bal.<\/th>\r\n<\/tr>\r\n<tr>\r\n<td>1<\/td>\r\n<td>1-Dec-X1<\/td>\r\n<td>\u00a0 100,000.00<\/td>\r\n<td>1,000.00<\/td>\r\n<td>\u00a0 101,000.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>2<\/td>\r\n<td>1-Jan-X2<\/td>\r\n<td>\u00a0 101,000.00<\/td>\r\n<td>1,010.00<\/td>\r\n<td>\u00a0 102,010.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>3<\/td>\r\n<td>1-Feb-X2<\/td>\r\n<td>\u00a0 102,010.00<\/td>\r\n<td>1,020.10<\/td>\r\n<td>\u00a0 103,030.10<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>4<\/td>\r\n<td>1-Mar-X2<\/td>\r\n<td>\u00a0 103,030.10<\/td>\r\n<td>1,030.30<\/td>\r\n<td>\u00a0 104,060.40<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>5<\/td>\r\n<td>1-Apr-X2<\/td>\r\n<td>\u00a0 104,060.40<\/td>\r\n<td>1,040.60<\/td>\r\n<td>\u00a0 105,101.01<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>6<\/td>\r\n<td>1-May-X2<\/td>\r\n<td>\u00a0 105,101.01<\/td>\r\n<td>1,051.01<\/td>\r\n<td>\u00a0 106,152.02<\/td>\r\n<\/tr>\r\n<tr>\r\n<td colspan=\"5\">...<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>94<\/td>\r\n<td>1-Sep-X9<\/td>\r\n<td>\u00a0 252,282.87<\/td>\r\n<td>2,522.83<\/td>\r\n<td>\u00a0 254,805.70<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>95<\/td>\r\n<td>1-Oct-X9<\/td>\r\n<td>\u00a0 254,805.70<\/td>\r\n<td>2,548.06<\/td>\r\n<td>\u00a0 257,353.76<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>96<\/td>\r\n<td>1-Nov-X9<\/td>\r\n<td>\u00a0 257,353.76<\/td>\r\n<td>2,573.54<\/td>\r\n<td>\u00a0 259,927.29<\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">Balloon pmt<\/th>\r\n<td>1-Dec-X9<\/td>\r\n<td>\u00a0 259,927.29<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nFrom this example, you can see the compounding effect of the interest rate as the unpaid interest increases the balance upon which future interest is calculated.\r\n<h4>Alternative 3<\/h4>\r\nYourCo borrows $100,000 from the bank on December 1 of 20X1 at 12% interest (compounded monthly) with principal and interest due monthly so that the loan is completely amortized by\u00a0 December 1 of 20X9.\r\n\r\nMonthly payments will be $1,625.28, and the ending principal and interest balance will be $0.\r\n\r\nYou could calculate this amount using an online amortization program or by using a spreadsheet (Excel function looks like this: =PMT(0.01,96,100000,0,0) where 0.01 is the rate, 96 is the number of periods, 100000 is the present value, 0 is the future value, and the final value of 0 represent payments at the end of each period, as opposed to a 1 that would indicate a payment at the beginning of each period.\r\n\r\nHere is a partial amortization schedule. Notice the total payments, principal plus interest, come to $156,026.88 which is significantly less than the balloon payment option (alternative 2).\r\n<div align=\"left\">\r\n<table class=\"fin-table gridded\">\r\n<tbody>\r\n<tr>\r\n<th colspan=\"2\" scope=\"col\">payment<\/th>\r\n<th scope=\"col\">Beg. Bal.<\/th>\r\n<th scope=\"col\">Payment<\/th>\r\n<th scope=\"col\">New balance<\/th>\r\n<th scope=\"col\">Interest<\/th>\r\n<th scope=\"col\">Ending Bal.<\/th>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td>1-Dec-X1<\/td>\r\n<td>\u00a0 100,000.00<\/td>\r\n<td><\/td>\r\n<td>\u00a0 100,000.00<\/td>\r\n<td>1,000.00<\/td>\r\n<td>\u00a0 101,000.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>1<\/td>\r\n<td>1-Jan-X2<\/td>\r\n<td>\u00a0 101,000.00<\/td>\r\n<td class=\"highlight\">($1,625.28)<\/td>\r\n<td>99,374.72<\/td>\r\n<td>\u00a0 \u00a0 993.75<\/td>\r\n<td>\u00a0 100,368.46<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>2<\/td>\r\n<td>1-Feb-X2<\/td>\r\n<td>\u00a0 100,368.46<\/td>\r\n<td class=\"highlight\">($1,625.28)<\/td>\r\n<td>98,743.18<\/td>\r\n<td>\u00a0 \u00a0 987.43<\/td>\r\n<td>99,730.61<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>3<\/td>\r\n<td>1-Mar-X2<\/td>\r\n<td>99,730.61<\/td>\r\n<td class=\"highlight\">($1,625.28)<\/td>\r\n<td>98,105.33<\/td>\r\n<td>\u00a0 \u00a0 981.05<\/td>\r\n<td>99,086.38<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>4<\/td>\r\n<td>1-Apr-X2<\/td>\r\n<td>99,086.38<\/td>\r\n<td class=\"highlight\">($1,625.28)<\/td>\r\n<td>97,461.10<\/td>\r\n<td>\u00a0 \u00a0 974.61<\/td>\r\n<td>98,435.71<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>5<\/td>\r\n<td>1-May-X2<\/td>\r\n<td>98,435.71<\/td>\r\n<td class=\"highlight\">($1,625.28)<\/td>\r\n<td>96,810.42<\/td>\r\n<td>\u00a0 \u00a0 968.10<\/td>\r\n<td>97,778.53<\/td>\r\n<\/tr>\r\n<tr>\r\n<td colspan=\"7\">...<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>93<\/td>\r\n<td>1-Sep-X9<\/td>\r\n<td>\u00a0 6,405.22<\/td>\r\n<td class=\"highlight\">($1,625.28)<\/td>\r\n<td>\u00a0 4,779.94<\/td>\r\n<td>\u00a0 \u00a0 \u00a0 47.80<\/td>\r\n<td>\u00a0 4,827.74<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>94<\/td>\r\n<td>1-Oct-X9<\/td>\r\n<td>\u00a0 4,827.74<\/td>\r\n<td class=\"highlight\">($1,625.28)<\/td>\r\n<td>\u00a0 3,202.45<\/td>\r\n<td>\u00a0 \u00a0 \u00a0 32.02<\/td>\r\n<td>\u00a0 3,234.48<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>95<\/td>\r\n<td>1-Nov-X9<\/td>\r\n<td>\u00a0 3,234.48<\/td>\r\n<td class=\"highlight\">($1,625.28)<\/td>\r\n<td>\u00a0 1,609.19<\/td>\r\n<td>\u00a0 \u00a0 \u00a0 16.09<\/td>\r\n<td>\u00a0 1,625.28<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>96<\/td>\r\n<td>1-Dec-X9<\/td>\r\n<td>\u00a0 1,625.28<\/td>\r\n<td class=\"highlight\">($1,625.28)<\/td>\r\n<td>\u00a0 \u00a0 \u00a0 (0.00)<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nAlso note two things about Alternative 3 in particular:\r\n<ol>\r\n \t<li style=\"font-weight: 400;\">\u00a0On December 31, 20X1, the company incurred $1,000 in interest expense on the loan but did not pay that until the Jan 1 payment, so that $1,000 in interest will have to be accrued (debit interest expense, credit interest payable).<\/li>\r\n \t<li style=\"font-weight: 400;\">In reporting the debt on the balance sheet at December 31, 20X1, the balance of $100,000 would be split between long-term debt reported as a noncurrent liability, and current portion of long-term debt reported as a current liability like this:\r\n<ol>\r\n \t<li style=\"font-weight: 400;\">Current portion (due within the next 12 months) = $7,009.47<\/li>\r\n \t<li style=\"font-weight: 400;\">Noncurrent portion = $92,990.53<\/li>\r\n \t<li style=\"font-weight: 400;\">These numbers come from the amortization schedule.<\/li>\r\n<\/ol>\r\n<\/li>\r\n<\/ol>\r\nIn addition to the current portion of long-term debt, the company must also disclose pertinent information for the amounts owed on the notes. This will include the interest rates, maturity dates, collateral pledged, limitations imposed by the creditor, etc.\r\n\r\n<\/div>\r\nThese concepts will apply to all kinds of long-term debt, including leases and bonds, but on the next page, we will focus on the journal entries needed for a simple note payable.\r\n<div class=\"textbox tryit\">\r\n<h3>practice question<\/h3>\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/23810\r\n\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li style=\"font-weight: 400;\">Evaluate the alternatives for financing on a long-term basis<\/li>\n<\/ul>\n<\/div>\n<p>A company uses various kinds of debt to finance its operations. Two major classifications of long-term debt are:<\/p>\n<ul>\n<li style=\"font-weight: 400;\"><strong>Secured:<\/strong> A debt obligation is considered secured if creditors have recourse to the assets of the company on a proprietary basis or otherwise ahead of general claims against the company. You may be most familiar with this debt in terms of either a mortgage on a house or an auto loan. Big companies can secure debt with a variety of assets, from accounts receivable to inventory to fixed assets.<\/li>\n<\/ul>\n<ul>\n<li style=\"font-weight: 400;\"><strong>Unsecured:<\/strong> Unsecured debt comprises financial obligations, where creditors do not have recourse to the assets of the borrower to satisfy their claims. The general public has access to this kind of debt in the form of credit cards and personal loans. As you may be aware, the risk is substantially higher, and therefore the interest rate is higher.<\/li>\n<\/ul>\n<p><strong><img loading=\"lazy\" decoding=\"async\" class=\"alignright wp-image-4953 size-medium\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/02213052\/stock-exchange-738671_1280-300x201.jpg\" alt=\"The stock exchange.\" width=\"300\" height=\"201\" \/><\/strong>In addition to being either secured or unsecured, debt could be classified as:<\/p>\n<ul>\n<li style=\"font-weight: 400;\"><strong>Private:<\/strong> Private debt is usually held by a bank or other commercial lender.<\/li>\n<li style=\"font-weight: 400;\"><strong>Public:<\/strong> Public debt is a general definition covering all financial instruments freely tradeable on a public exchange or over the counter, with few if any restrictions, and include bonds and commercial paper.<\/li>\n<\/ul>\n<p>A basic loan or \u201cterm loan\u201d is the simplest form of debt. It consists of an agreement to lend a fixed amount of money, called the principal sum, for a fixed period of time, with the amount to be repaid by a certain date (balloon) or in installments (amortized), plus interest.<\/p>\n<div class=\"textbox examples\">\n<h3>Examples<\/h3>\n<p>YourCo needs $100,000 for long-term expansion plans that include some remodeling, the purchase of a competitor, and other capital and infrastructure improvements. YourCo has an extremely good credit rating and credit history with the bank.<\/p>\n<h4>Alternative 1<\/h4>\n<p>YourCo borrows $100,000 from the bank on December 1 of 20X1 at 12% interest with interest-only payments monthly for 8 years, the last interest payment and principal balance due on December 1 of 20X9.<\/p>\n<p>Monthly interest payments will be $1,000, and the ending principal balance will be $100,000.<\/p>\n<h4>Alternative 2<\/h4>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignright wp-image-4955 size-medium\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/02213320\/analytics-3265840_1920-300x122.jpg\" alt=\"A woman on a laptop sitting next to a bar graph. There is an arrow above the bars pointing in an upward direction.\" width=\"300\" height=\"122\" \/><\/p>\n<p>YourCo borrows $100,000 from the bank on December 1 of 20X1 at 12% interest (compounded monthly) with principal and interest due on December 1 of 20X9.<\/p>\n<p>Monthly payments will be $0, and the ending principal and interest balance will be $259,927.29. You could find this amount on a future value table, using 96 periods (8 years, interest is compounded monthly) and a rate of 1% (12% annually divided by 12 months), or you could use a formula: principle \u00d7 (1+i)^n.<\/p>\n<p>That would be $100,000 \u00d7 1.0196 = 100000 \u00d7 2.599272925559384\u2026<\/p>\n<p>Which is a total of $259,927.29.<\/p>\n<p>Or, you could create a running calculation on a spreadsheet like this:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"&quot;fin-table\">\n<tbody>\n<tr>\n<th colspan=\"2\" scope=\"col\">Month<\/th>\n<th scope=\"col\">Beg. Bal.<\/th>\n<th scope=\"col\">Interest<\/th>\n<th scope=\"col\">Ending Bal.<\/th>\n<\/tr>\n<tr>\n<td>1<\/td>\n<td>1-Dec-X1<\/td>\n<td>\u00a0 100,000.00<\/td>\n<td>1,000.00<\/td>\n<td>\u00a0 101,000.00<\/td>\n<\/tr>\n<tr>\n<td>2<\/td>\n<td>1-Jan-X2<\/td>\n<td>\u00a0 101,000.00<\/td>\n<td>1,010.00<\/td>\n<td>\u00a0 102,010.00<\/td>\n<\/tr>\n<tr>\n<td>3<\/td>\n<td>1-Feb-X2<\/td>\n<td>\u00a0 102,010.00<\/td>\n<td>1,020.10<\/td>\n<td>\u00a0 103,030.10<\/td>\n<\/tr>\n<tr>\n<td>4<\/td>\n<td>1-Mar-X2<\/td>\n<td>\u00a0 103,030.10<\/td>\n<td>1,030.30<\/td>\n<td>\u00a0 104,060.40<\/td>\n<\/tr>\n<tr>\n<td>5<\/td>\n<td>1-Apr-X2<\/td>\n<td>\u00a0 104,060.40<\/td>\n<td>1,040.60<\/td>\n<td>\u00a0 105,101.01<\/td>\n<\/tr>\n<tr>\n<td>6<\/td>\n<td>1-May-X2<\/td>\n<td>\u00a0 105,101.01<\/td>\n<td>1,051.01<\/td>\n<td>\u00a0 106,152.02<\/td>\n<\/tr>\n<tr>\n<td colspan=\"5\">&#8230;<\/td>\n<\/tr>\n<tr>\n<td>94<\/td>\n<td>1-Sep-X9<\/td>\n<td>\u00a0 252,282.87<\/td>\n<td>2,522.83<\/td>\n<td>\u00a0 254,805.70<\/td>\n<\/tr>\n<tr>\n<td>95<\/td>\n<td>1-Oct-X9<\/td>\n<td>\u00a0 254,805.70<\/td>\n<td>2,548.06<\/td>\n<td>\u00a0 257,353.76<\/td>\n<\/tr>\n<tr>\n<td>96<\/td>\n<td>1-Nov-X9<\/td>\n<td>\u00a0 257,353.76<\/td>\n<td>2,573.54<\/td>\n<td>\u00a0 259,927.29<\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Balloon pmt<\/th>\n<td>1-Dec-X9<\/td>\n<td>\u00a0 259,927.29<\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>From this example, you can see the compounding effect of the interest rate as the unpaid interest increases the balance upon which future interest is calculated.<\/p>\n<h4>Alternative 3<\/h4>\n<p>YourCo borrows $100,000 from the bank on December 1 of 20X1 at 12% interest (compounded monthly) with principal and interest due monthly so that the loan is completely amortized by\u00a0 December 1 of 20X9.<\/p>\n<p>Monthly payments will be $1,625.28, and the ending principal and interest balance will be $0.<\/p>\n<p>You could calculate this amount using an online amortization program or by using a spreadsheet (Excel function looks like this: =PMT(0.01,96,100000,0,0) where 0.01 is the rate, 96 is the number of periods, 100000 is the present value, 0 is the future value, and the final value of 0 represent payments at the end of each period, as opposed to a 1 that would indicate a payment at the beginning of each period.<\/p>\n<p>Here is a partial amortization schedule. Notice the total payments, principal plus interest, come to $156,026.88 which is significantly less than the balloon payment option (alternative 2).<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table gridded\">\n<tbody>\n<tr>\n<th colspan=\"2\" scope=\"col\">payment<\/th>\n<th scope=\"col\">Beg. Bal.<\/th>\n<th scope=\"col\">Payment<\/th>\n<th scope=\"col\">New balance<\/th>\n<th scope=\"col\">Interest<\/th>\n<th scope=\"col\">Ending Bal.<\/th>\n<\/tr>\n<tr>\n<td><\/td>\n<td>1-Dec-X1<\/td>\n<td>\u00a0 100,000.00<\/td>\n<td><\/td>\n<td>\u00a0 100,000.00<\/td>\n<td>1,000.00<\/td>\n<td>\u00a0 101,000.00<\/td>\n<\/tr>\n<tr>\n<td>1<\/td>\n<td>1-Jan-X2<\/td>\n<td>\u00a0 101,000.00<\/td>\n<td class=\"highlight\">($1,625.28)<\/td>\n<td>99,374.72<\/td>\n<td>\u00a0 \u00a0 993.75<\/td>\n<td>\u00a0 100,368.46<\/td>\n<\/tr>\n<tr>\n<td>2<\/td>\n<td>1-Feb-X2<\/td>\n<td>\u00a0 100,368.46<\/td>\n<td class=\"highlight\">($1,625.28)<\/td>\n<td>98,743.18<\/td>\n<td>\u00a0 \u00a0 987.43<\/td>\n<td>99,730.61<\/td>\n<\/tr>\n<tr>\n<td>3<\/td>\n<td>1-Mar-X2<\/td>\n<td>99,730.61<\/td>\n<td class=\"highlight\">($1,625.28)<\/td>\n<td>98,105.33<\/td>\n<td>\u00a0 \u00a0 981.05<\/td>\n<td>99,086.38<\/td>\n<\/tr>\n<tr>\n<td>4<\/td>\n<td>1-Apr-X2<\/td>\n<td>99,086.38<\/td>\n<td class=\"highlight\">($1,625.28)<\/td>\n<td>97,461.10<\/td>\n<td>\u00a0 \u00a0 974.61<\/td>\n<td>98,435.71<\/td>\n<\/tr>\n<tr>\n<td>5<\/td>\n<td>1-May-X2<\/td>\n<td>98,435.71<\/td>\n<td class=\"highlight\">($1,625.28)<\/td>\n<td>96,810.42<\/td>\n<td>\u00a0 \u00a0 968.10<\/td>\n<td>97,778.53<\/td>\n<\/tr>\n<tr>\n<td colspan=\"7\">&#8230;<\/td>\n<\/tr>\n<tr>\n<td>93<\/td>\n<td>1-Sep-X9<\/td>\n<td>\u00a0 6,405.22<\/td>\n<td class=\"highlight\">($1,625.28)<\/td>\n<td>\u00a0 4,779.94<\/td>\n<td>\u00a0 \u00a0 \u00a0 47.80<\/td>\n<td>\u00a0 4,827.74<\/td>\n<\/tr>\n<tr>\n<td>94<\/td>\n<td>1-Oct-X9<\/td>\n<td>\u00a0 4,827.74<\/td>\n<td class=\"highlight\">($1,625.28)<\/td>\n<td>\u00a0 3,202.45<\/td>\n<td>\u00a0 \u00a0 \u00a0 32.02<\/td>\n<td>\u00a0 3,234.48<\/td>\n<\/tr>\n<tr>\n<td>95<\/td>\n<td>1-Nov-X9<\/td>\n<td>\u00a0 3,234.48<\/td>\n<td class=\"highlight\">($1,625.28)<\/td>\n<td>\u00a0 1,609.19<\/td>\n<td>\u00a0 \u00a0 \u00a0 16.09<\/td>\n<td>\u00a0 1,625.28<\/td>\n<\/tr>\n<tr>\n<td>96<\/td>\n<td>1-Dec-X9<\/td>\n<td>\u00a0 1,625.28<\/td>\n<td class=\"highlight\">($1,625.28)<\/td>\n<td>\u00a0 \u00a0 \u00a0 (0.00)<\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>Also note two things about Alternative 3 in particular:<\/p>\n<ol>\n<li style=\"font-weight: 400;\">\u00a0On December 31, 20X1, the company incurred $1,000 in interest expense on the loan but did not pay that until the Jan 1 payment, so that $1,000 in interest will have to be accrued (debit interest expense, credit interest payable).<\/li>\n<li style=\"font-weight: 400;\">In reporting the debt on the balance sheet at December 31, 20X1, the balance of $100,000 would be split between long-term debt reported as a noncurrent liability, and current portion of long-term debt reported as a current liability like this:\n<ol>\n<li style=\"font-weight: 400;\">Current portion (due within the next 12 months) = $7,009.47<\/li>\n<li style=\"font-weight: 400;\">Noncurrent portion = $92,990.53<\/li>\n<li style=\"font-weight: 400;\">These numbers come from the amortization schedule.<\/li>\n<\/ol>\n<\/li>\n<\/ol>\n<p>In addition to the current portion of long-term debt, the company must also disclose pertinent information for the amounts owed on the notes. This will include the interest rates, maturity dates, collateral pledged, limitations imposed by the creditor, etc.<\/p>\n<\/div>\n<p>These concepts will apply to all kinds of long-term debt, including leases and bonds, but on the next page, we will focus on the journal entries needed for a simple note payable.<\/p>\n<div class=\"textbox tryit\">\n<h3>practice question<\/h3>\n<p>\t<iframe id=\"lumen_assessment_23810\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=23810&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_23810\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-4013\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Long-Term Financing Options. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li><strong>Authored by<\/strong>: Skeeze. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/pixabay.com\/photos\/stock-exchange-trading-floor-738671\/\">https:\/\/pixabay.com\/photos\/stock-exchange-trading-floor-738671\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/about\/cc0\">CC0: No Rights Reserved<\/a><\/em>. <strong>License Terms<\/strong>: https:\/\/pixabay.com\/service\/terms\/#license<\/li><li><strong>Authored by<\/strong>: Tumisu. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/pixabay.com\/photos\/analytics-charts-business-woman-3265840\/\">https:\/\/pixabay.com\/photos\/analytics-charts-business-woman-3265840\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/about\/cc0\">CC0: No Rights Reserved<\/a><\/em>. <strong>License Terms<\/strong>: https:\/\/pixabay.com\/service\/terms\/#license<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":90270,"menu_order":3,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Long-Term Financing Options\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen 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