Question

Which of the following is a condition necessary to exclude an obligation from current liabilities? Entry field with incorrect answer Subsequently refinance the obligation on a long-term basis. Intend to refinance the obligation on a long-term basis. Demonstrate the ability to complete the refinancing. Obligation that has a distant due date exceeding company's operating cycle.

Answer 1

The answer is: Obligation that has a distant due date exceeding company's operating cycle.

Step-by-step explanation:

A current liability is a financial obligation due within one year (or one normal operation cycle).

So a financial obligation that has a due date that exceeds a company´s operating cycle should have been directly classified as a long term liability (or a non current liability) in the first place. It simply is not a current liability that is changed into a long term liability, it always was a long term liability.

The other options represent the steps necessary for turning a current liability into a long term liability.

1. Intend to refinance the obligation on a long-term basis.
2. Demonstrate the ability to complete the refinancing.
3. Subsequently refinance the obligation on a long-term basis.