ques 1

Current Liability
Scenario Amount ($ in
millions)

a. $40.00
b. $1.00
c. $20.00
d. 0

a. The requirement to classify currently maturing debt as a current liability includes debt that is callable by
the creditor in the upcoming year—even if the debt is not expected to be called. So, the entire $40.0
million debt is a current liability

b. $5 million can be reported as long term, but $1 million must be reported as a current liability. Short-
term obligations that are expected to be refinanced with long-term obligations can be reported as
noncurrent liabilities only if the firm (a) intends to refinance on a long-term basis and (b) actually has
demonstrated the ability to do so. Ability to refinance on a long-term basis can be demonstrated by either
an existing refinancing agreement or by actual financing prior to the issuance of the financial statements.
The refinancing agreement in this case limits the ability to refinance to $5 million of the notes. In the
absence of other evidence of ability to refinance, the remaining $1 million cannot be reported as long
term.

c.

The entire $20 million maturity amount should be reported as a current liability because that amount is
payable in the upcoming year and it will not be refinanced with long-term obligations.

d. The entire $12 million loan should be reported as a long-term liability because that amount is payable in
2024 and it will not be refinanced with long-term obligations.
 NEVADA HARVESTER CORPORATION
Balance Sheet (partial)
At December 31, 2018
($ in millions)
Current Liabilities
Accounts payable and accruals $22.00
10% notes payable due May 2019 $1.00
Currently maturing portion of long-term debt:
11% bonds due October 31, 2029 redeemable on October 31, 2019 $40.00
12% Bonds due September 30, 2019 $20.00 $60.00
Total Current Liabilities $83.00
Long-Term Debt
Currently maturing debt classified as long-term:
10% notes payable due May 2019 $ 5.00
9% bank loan due October 2024 $ 12.00
Total Long-term Liabilities $ 17.00
Total Liabilities $ 100.00
ques 1

Current Liability
Scenario Amount ($ in
millions)

a. $35.00
b. $5.00
c. $16.00
d.

a. The requirement to classify currently maturing debt as a current liability includes debt that is callable by
the creditor in the upcoming year—even if the debt is not expected to be called. So, the entire $35.0
million debt is a current liability

b. $4 million can be reported as long term, but $5 million must be reported as a current liability. Short-
term obligations that are expected to be refinanced with long-term obligations can be reported as
noncurrent liabilities only if the firm (a) intends to refinance on a long-term basis and (b) actually has
demonstrated the ability to do so. Ability to refinance on a long-term basis can be demonstrated by either
an existing refinancing agreement or by actual financing prior to the issuance of the financial statements.
The refinancing agreement in this case limits the ability to refinance to $4 million of the notes. In the
absence of other evidence of ability to refinance, the remaining $5 million cannot be reported as long
term.

c.

The entire $16 million maturity amount should be reported as a current liability because that amount is
payable in the upcoming year and it will not be refinanced with long-term obligations.

d. The entire $27 million loan should be reported as a long-term liability because that amount is payable in
2024 and it will not be refinanced with long-term obligations.
 NEVADA HARVESTER CORPORATION
Balance Sheet (partial)
At December 31, 2018
($ in millions)
Current Liabilities
Accounts payable and accruals $16.00
7% notes payable due May 2019 $5.00
Currently maturing portion of long-term debt:
10% bonds due October 31, 2029 redeemable on October 31, 2019 $35.00
10% Bonds due September 30, 2019 $16.00 $51.00
Total Current Liabilities $72.00
Long-Term Debt
Currently maturing debt classified as long-term:
7% notes payable due May 2019 $ 4.00
6% bank loan due October 2024 $ 27.00
Total Long-term Liabilities $ 31.00
Total Liabilities $ 103.00