Question

If a company intends to refinance a short-term liability on a long-term basis, the liability must be reported as current unless the company has compensated the refinancing agreement by the balance sheet date.

1) True
2) False

Answer 1

It is true that a company must report a liability as current if it intends to refinance a short-term liability on a long-term basis and has not completed the refinancing by the balance sheet date.

Step-by-step explanation:

The statement that if a company intends to refinance a short-term liability on a long-term basis, the liability must be reported as current unless the company has completed the refinancing agreement by the balance sheet date is True. According to accounting standards, liabilities are classified as current when they are due within one year or one operating cycle, whichever is longer. For a liability to be classified as long-term, the refinancing must be completed before the balance sheet date; otherwise, it must be presented as a current liability. This rule helps ensure that the balance sheet accurately represents the company's financial position and the classification of its liabilities, impacting the ratio of current liabilities to assets as well as the company's bank capital.