Question

At December 31, 2017 (the end of the fiscal year), Grouper Corporation owes $1,720,000 on a note payable due January 31, 2018. If Grouper refinances the obligation by issuing a long-term note on February 20, 2018 and using the proceeds to pay off the note due January 31, how much of the $1,720,000 should be reported as a current liability at December 31, 2017

Answer 1

Nil or $0

Step-by-step explanation:

The entire amount of $1,720,000 should be reported as long term liability, as the both the criteria of intent and ability are met. The second note (long term note) was issued to repay the first one. It is presumed the firm did not have enough current assets to pay the first note and that the second note is made before the issue of the balance sheet. So, the amount to be reported as current liability is "nil".