Question

The CEO of Washington Plastics, Inc. has asked the accounting department to research the classification of liabilities between long-term and current. For which of the following situations would not require Washington to report long-term liabilities as current liabilities on its classified balance sheet?

Answer 1

Long-term liabilities may be reported as current liabilities on a classified balance sheet if they are due within a year, if the company intends to refinance the debt, or if the company is in violation of a debt covenant.

Step-by-step explanation:

On a classified balance sheet, long-term liabilities are typically reported separately from current liabilities. However, there are situations where long-term liabilities may need to be reported as current liabilities. One such situation is when the long-term liabilities are due within one year from the balance sheet date. If the liabilities are due after one year, they would be classified as long-term liabilities and not reported as current liabilities. Another situation is when the company has the intent and ability to refinance the long-term debt on a long-term basis. In this case, the debt can still be classified as long-term even if it is due within one year, as long as the company has the intent to refinance. Lastly, if the company is in violation of a debt covenant and the creditor has the right to demand payment within one year, the long-term debt would need to be reported as current liabilities.