On January 1, 1992, Lacey Treetoppers borrowed $300,000, which is to be paid back in annual installments of $20,000 on December 30 of each year. REQUIRED:

a. Assuming that Lacey has met all payments on a timely basis, how should this liability be reported on the December 31, 1996, balance sheet?

b. Assume that during December of 1996 the management of Lacey realizes that including the upcoming $20,000 installment as a current liability reduces the company’s current ratio below 2:1, the ratio required in a long-term note payable signed by the company. Discuss how management might be able to avoid classifying the current maturity as a current liability.