Diamond Dealers has two notes payable outstanding on December 31, 2024, as follows:

(a)

(b)

A five-year, 5.9%, $66,000 note payable issued on August 31, 2024. Diamond Dealers is required to pay $13,200 plus interest on August 31 each year starting in 2025.

A four-year, 5.3%, $62,400 note payable issued on September 30, 2024. Diamond Dealers is required to pay $1,300 plus interest at the end of each month starting on October 31, 2024. All payments are up to date.

Calculate the amount of each note to be included in current and non-current liabilities on Diamond Dealers' December 31, 2024, balance sheet. Ignore interest.

(a)

(b)

Current liability

Non-current liability

To classify each note as a current or non-current liability on Diamond Dealers' balance sheet as of December 31, 2024, we need to differentiate between the amounts due within one year (current liabilities) and the amounts payable beyond one year (non-current liabilities). Since we're ignoring interest, we will focus only on the principal payments due within and after the next 12 months.

### (a) Five-year, 5.9%, $66,000 note payable (issued August 31, 2024)

- The total note payable is $66,000.
- The company must pay **$13,200** annually, starting August 31, 2025.

#### Classification for December 31, 2024:

- **Current liability**: The next installment of $13,200 is due within the next year (August 31, 2025), so it is classified as a current liability.
- **Non-current liability**: The remaining balance will be due after August 31, 2025.

The non-current portion is calculated as:
\[
\text{Non-current liability} = 66,000 - 13,200 = 52,800
\]

Thus, for this note:
- **Current liability**: $13,200
- **Non-current liability**: $52,800

---

### (b) Four-year, 5.3%, $62,400 note payable (issued September 30, 2024)

- The total note payable is $62,400.
- The company must pay **$1,300** per month starting October 31, 2024.

#### Classification for December 31, 2024:

- **Current liability**: The payments due within the next year (from January 2025 to December 2025) amount to $ 1,300 \times 12 = 15,600 $.
- **Non-current liability**: The remaining payments after December 2025.

The non-current portion is calculated as:
\[
\text{Non-current liability} = 62,400 - 15,600 = 46,800
\]

Thus, for this note:
- **Current liability**: $15,600
- **Non-current liability**: $46,800

---

### Summary of liabilities for December 31, 2024:

**(a) Five-year, $66,000 note payable:**
- Current liability: **$13,200**
- Non-current liability: **$52,800**

**(b) Four-year, $62,400 note payable:**
- Current liability: **$15,600**
- Non-current liability: **$46,800**

---

Would you like more details on the steps, or do you have any further questions? Here are some related questions to consider:

1. How is interest typically accounted for in such notes payable?
2. What happens if payments are not made on time—how would this impact the liabilities?
3. How do you calculate the total interest paid on these notes over the loan period?
4. How would early repayment affect the classification of liabilities?
5. What financial ratios would be affected by the classification of current vs. non-current liabilities?

**Tip**: Always carefully distinguish between current and non-current liabilities to assess a company’s short-term liquidity.

Diamond Dealers has two notes payable outstanding on December 31, 2024, as follows:
(a)
(b)
A five-year, 5.9%, $66,000 note payable issued on August 31, 2024. Diamond Dealers is required to pay $13,200 plus interest on August 31 each year starting in 2025.
A four-year, 5.3%, $62,400 note payable issued on September 30, 2024. Diamond Dealers is required to pay $1,300 plus interest at the end of each month starting on October 31, 2024. All payments are up to date.
Calculate the amount of each note to be included in current and non-current liabilities on Diamond Dealers' December 31, 2024, balance sheet. Ignore interest.
(a)
(b)
Current liability
Non-current liability

Learn how to classify current and non-current liabilities for Diamond Dealers' notes payable as of December 31, 2024. The problem involves calculating the liabilities for a five-year $66,000 note and a four-year $62,400 note. This exercise applies concepts of financial accounting and loan amortization.

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