Hamiltons Bakery borrowed $50,000 on January 1, 2009. The bakery is required to repay $5,000 of the

Question:

Hamilton’s Bakery borrowed $50,000 on January 1, 2009. The bakery is required to repay $5,000 of the loan principal on December 31 of each year beginning in 2009 plus an amount equal to 10 percent interest rate on the unpaid principal.
Required:
(a) How will this debt be reported in Hamilton’s December 31, 2010, balance sheet? How much interest expense related to this debt will be reported in Hamilton’s income statement for the year ended December 31, 2010?
(b) How will this debt be reported in Hamilton’s December 31, 2011, balance sheet?
(c) If Hamilton’s fails to classify any portion of the loan as a current liability in its December 31, 2011, balance sheet, how might decision makers’ analysis of the company’s ﬁnancial statements be affected? Explain.