On December 31, 2013, L Inc. had a $2,700,000 note payable outstanding, due July

Question

On December 31, 2013, L Inc. had a $2,700,000 note payable outstanding, due July 31, 2014. L borrowed the money to finance construction of a new plant. L planned to refinance the note by issuing long-term bonds. Because L temporarily had excess cash, it prepaid $620,000 of the note on January 23, 2014. In February 2014, L completed a $4,200,000 bond offering. L will use the bond offering proceeds to repay the note payable at its maturity and to pay construction costs during 2014. On March 13, 2014, L issued its 2013 financial statements. What amount of the note payable should L include in the current liabilities section of its December 31, 2013, balance sheet?

On December 31, 2013, L Inc. had a $2,700,000 note payable outstanding, due July 31, 2014. L borrowed the money to finance construction of a new plant. L planned to refinance the note by issuing long-term bonds. Because L temporarily had excess cash, it prepaid $620,000 of the note on January 23, 2014. In February 2014, L completed a $4,200,000 bond offering. L will use the bond offering proceeds to repay the note payable at its maturity and to pay construction costs during 2014. On March 13, 2014, L issued its 2013 financial statements. What amount of the note payable should L include in the current liabilities section of its December 31, 2013, balance sheet?

Explanation / Answer

Hi,

Option C (620000) is the correct answer.

Explanation:

The amount of excess cash prepaid by L will be treated as the amount of note payable to be included in the current liabilities section of the balance sheet.

Thanks.

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