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Chapter 13: Q8IFRS (page 715)

Presented below are two different situations related to Mckee Corporation鈥檚 debt obligation. Mckee鈥檚 next financial reporting date is December 31, 2017. The financial statements are authorized for issuance on March 1, 2018.

  1. Mckee has a long-term obligation of \(400,000, which is maturing over 4 years in the amount of \)100,000 per year. The obligation is dated November 1, 2017, and the first maturity date is November 1, 2018.
  2. Mckee has a short-term obligation due February 15, 2018. Its lender agrees to extend the credit to the maturity date of this loan to February 15, 2018. The agreement for extension is signed on January 15, 2018.

Instructions

Indicate how each of these debt obligations is reported on McKee鈥檚 statement of financial position on December 31, 2017.

Short Answer

Expert verified

The long-term obligation of $300,000 shows as a Non-current liability, and the current portion of the long-term of $100,000 maturing shows as a current liability, but the short-term credit extended shows as a non-current liability.

Step by step solution

01

Meaning of the Balance Sheet

The balance sheet is a statement prepared at the end of the accounting period that shows the assets, liabilities as well as equity of the business.

02

Balance sheet ( extract )

Statement of Financial Position

For the Year Ended December 31, 2017


Liabilities

$

Current Liabilities:

Current Portion of Long-Term Debt

$100,000

Non-Current Liabilities:

Long term Debts

$300,000

Short Term Debts

-

Total Liabilities($100,000 + $300,000)

$400,000

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Most popular questions from this chapter

(Fair Value Option) Presented below is selected information related to the financial instruments of

Dawson Company at December 31, 2017. This is Dawson Company鈥檚 first year of operations.

Carrying Fair Value

Amount (at December 31)

Investment in debt securities (intent is to hold to maturity) \( 40,000 \) 41,000

Investment in Chen Company stock 800,000 910,000

Bonds payable 220,000 195,000

Instructions

(a) Dawson elects to use the fair value option for these investments. Assuming that Dawson鈥檚 net income is $100,000 in2017 before reporting any securities gains or losses determine Dawson鈥檚 net income for 2017. Assume that the differencebetween the carrying value and fair value is due to credit deterioration.

(b) Record the journal entry, if any, necessary at December 31, 2017, to record the fair value option for the bonds payable

What are compensated absences?

Ramirez Company has a held-for-collection investment in the 6%, 20-year bonds of Soto Company. The investment was originally purchased for \(1,200,000 in 2016. Early in 2017, Ramirez recorded an impairment of \)300,000 on the Soto investment, due to Soto鈥檚 financial distress. In 2018, Soto returned to profitability and the Soto investment was no longer impaired. What entry does Ramirez make in 2018 under (a) GAAP and (b) IFRS?

BE13-1 (L01) Roley Corporation uses a periodic inventory system and the gross method of accounting for purchase discounts. On July 1, Roley purchased \(60,000 of inventory, terms 2/10, n/30, FOB shipping point. Roley paid freight costs of \)1,200. On July 3, Roley returned damaged goods and received credit of $6,000. On July 10, Roley paid for the goods. Prepare all necessary journal entries for Roley.

Distinguish between a current liability and a long-term debt
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