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Chapter 13: 9BE (page 658)

At December 31, 2017, Burr Corporation owes \(500,000 on a note payable due February 15, 2018. (a) If Burr refinances the obligation by issuing a long-term note on February 14 and using the proceeds to pay off the note due February 15, how much of the \)500,000 should be reported as a current liability at December 31, 2017? (b) If Burr pays off the note on February 15, 2018, and then borrows \(1,000,000 on a long-term basis on March 1, how much of the \)500,000 should be reported as a current liability at December 31, 2017, the end of the fiscal year?

Short Answer

Expert verified

(a) No obligations will be reported as a current liability.

(b) $500,000 will be reported as a current liability.

Step by step solution

01

(a) Explanation on reporting of current liability

In the given case nothing will be reported as a current liability, as it satisfies both the condition of intending to refinance the obligations by long-term liabilities and demonstrate an ability to consume the refinanced funds.

02

(b) Explanation on reporting of current liability

In the given case, a total $500,000 of note payable will be reported as a current liability, as there is no intent of refinancing by long-term debt, and also it does not exhibit the ability to use the refinanced funds for repayment.

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Most popular questions from this chapter

Eddie Zambrano Corporation began operations on January 1, 2017. During its first 3 years of operations, Zambrano reported net income and declared dividends as follows.

Net Income Dividends Declared

2014 \( 40,000 \) –0–

2015 125,000 50,000

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The following information relates to 2017.

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