The current liabilities section of the December 31, 2020, balance sheet of Learnstream Company included notes payable of $14,000 and interest payable of $490. The note payable was issued to Tanner Company on June 30, 2020. Interest of 7% is payable at maturity, March 31, 2021. The following selected transactions occurred in the year ended December 31, 2021:

Jan. 12 Purchased merchandise on account from McCoy Company for $25,000, terms n/30. Learnstream uses a perpetual inventory system.

31 Issued a $25,000, three-month, 7% note to McCoy Company in payment of its account. Interest is payable monthly.

Feb. 28 Paid interest on the McCoy note (see January 31 transaction).

Mar. 31 Paid the Tanner note, plus interest.

31 Paid interest on the McCoy note (see January 31 transaction).

Apr. 30 Paid the McCoy note, plus one month’s interest (see January 31 transaction).

Aug. 1 Purchased equipment from Drouin Equipment by paying $11,000 cash and signing a $30,000, 10-month, 6% note. Interest is payable at maturity.

Sept. 30 Borrowed $100,000 cash from the First Interprovincial Bank by signing a 10-year, 5% note payable.

Interest is payable quarterly on December 31, March 31, June 30, and September 30. Of the principal, $10,000 must be paid each September 30.

Dec. 31 Paid interest on the First Interprovincial Bank note (see September 30 transaction).

Instructions

a. Record the transactions and any adjustments required at December 31.

b. Show the balance sheet presentation of notes payable and interest payable at December 31.

c. Show the income statement presentation of interest expense for the year.

Why is it important to correctly classify notes payable as either current or noncurrent in the balance sheet?