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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

Question: Amsterdam Company uses a periodic inventory system. For April, when the company sold 600 units, the following information is available.

Units Unit Cost Total Cost

April 1 inventory 250 \(10 \) 2,500

April 15 purchase 400 12 4,800

April 23 purchase 350 13 4,550

1,000 $11,850

Compute the April 30 inventory and the April cost of goods sold using the average-cost method.

Question: In accounting for short-term debt expected to be refinanced to long-term debt:

  1. GAAP uses the authorization date to determine classification of short-term debt to be refinanced.
  2. IFRS uses the authorization date to determine classification of short-term debt to be refinanced.
  3. IFRS uses the financial statement date to determine classification of short-term debt to be refinanced.
  4. GAAP uses the date of issue, but only for secured debt, to determine classification of short-term debt to be refinanced.

Question: The following information relates to Moran Co. for the year ended December 31, 2017: net income \(1,245.7 million; unrealized holding loss of \)10.9 million related to available-for-sale debt securities during the year; accumulated other comprehensive income of $57.2 million on December 31, 2016. Assuming no other changes in accumulated other comprehensive income, determine (a) other comprehensive income for 2017, (b)comprehensive income for 2017, and (c) accumulated other comprehensive income at December 31, 2017.

Question: What factors must be considered in determining whether or not to record a liability for pending litigation? For threatened litigation?

Question: When should liabilities for each of the following items be recorded on the books of an ordinary business corporation?

  1. Acquisition of goods by purchase on credit.
  2. Officers鈥� salaries.
  3. Special bonus to employees.
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