Retained Earmings Inventory 4000 Current Liabilities Using the following informa

Question

Retained Earmings Inventory 4000 Current Liabilities Using the following information, compute total current liabilities: Accrued Income Taxes Payable.. … Notes Payable (due in 14 months). Paid-In Capital Treasury Stock Current Portion of Long-Term Debt Unearned Revenue Accounts Payable Retained Earnings. 9,000 1,100 1,750 10000 250 1,000 Additional Paid-in Capital 3-5 Classification of Short-Term Loans to Be Refinanced The company has the following three loans payable scheduled to be repaid in June of next year As December 31 of this year, identify which of the three should be classified as current and which should be classified as noncurrent a) The company intends to repay Loan A when it comes due in June In September, the company intend b) The company intends to refinance Loan B when it comes due The refinancing contract will be signed (c) The company intends to refinance Loan C when it comes due. The refinancing contract wil e to get a new loan of equal amount from the same bank May after the financial statements for this year have been released signed in January before the financial statements for this year have been released

Explanation / Answer

For short-term loans to be classified as noncurrent, per the US GAAP, both of the following conditions are required to be met:

1. Intention to refinance the obligation on a long-term basis must be there.

2. Must demonstrate an ability to refinance by either actual refinancing after the balance sheet date but before the release of financial statements OR by entering into a noncancellable financing agreement with a capable lender.

Based on the above conditions, Loan A is classified as current, Loan B is also classified as current since the refinancing contract will be signed after the financial statements have been released but Loan C is classified as noncurrent since both the conditions are met.

Loan Classification A Current B Current C Noncurrent

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