Question

Which of the following situations would not require that long term liabilities be recorded as current liabilities on a classified balance sheet?

1) Long term Debt is callable by the creditor
2) The creditor has the right to demand payment due to a contractual violation
3) The long term debt matures within the upcoming year
4) The company intended to refinance the debt and did so prior to issuance of the financial statements

Answer 1

Option 4, where the company refinanced its debt prior to the financial statements issuance, is the scenario where long-term liabilities would not be reclassified as current on a balance sheet.

Step-by-step explanation:

The situation that would not require that long-term liabilities be recorded as current liabilities on a classified balance sheet is when 'The company intended to refinance the debt and did so prior to the issuance of the financial statements' (Option 4).

In the context of banking and finance, an asset-liability time mismatch occurs when customers can withdraw a bank's liabilities in the short term while customers repay its assets in the long term. This can lead to potential liquidity issues for a bank if not managed properly. A bank's balance sheet may list money under assets that is not presently in the bank because these assets include loans given out to customers, which are expected to be repaid over time.