Question

A company can exclude a short-term obligation from current liabilities if it:

A. demonstrates an ability to consummate the refinancing.
B. pays off the obligation after the balance sheet date and subsequently replaces it with long-term debt before the balance sheet is issued.
C. intends to refinance the obligation on a long-term basis and demonstrates an ability to consummate the refinancing.
D. intends to refinance the obligation on a long-term basis.

Answer 1

A company can exclude a short-term obligation from current liabilities if it intends to refinance the obligation on a long-term basis and demonstrates an ability to consummate the refinancing.

Step-by-step explanation:

A company can exclude a short-term obligation from current liabilities if it demonstrates an ability to consummate the refinancing. Specifically, the correct answer is that a company can reclassify a short-term obligation as non-current if it intends to refinance the obligation on a long-term basis and demonstrates an ability to consummate the refinancing. This is in accordance with accounting principles and financial reporting standards that allow for the reclassification of such obligations based on a company's refinancing actions and intentions, as well as its ability to actually secure the refinancing.

This concept is critical in understanding how companies manage their balance sheet and short-term liabilities to ensure financial stability and solvency. It illustrates the importance of a company's ability to manage its financing and the maturity structure of its debt.