Question

Jenkins Corporation has $2,500,000 of short-term debt it expects to retire with proceeds from the sale of 75,000 shares of common stock. If the stock is sold for $20 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities?

a. $1,500,000
b. $2,500,000
c. $1,000,000
d. $0

Answer 1

The correct answer is b. $2,500,000, which is the amount of short-term debt that Jenkins Corporation can exclude from current liabilities after the sale of 75,000 shares at $20 each.

Step-by-step explanation:

The student's question pertains to the classification of a short-term debt as a current liability when anticipating its retirement with the proceeds from a stock sale. Jenkins Corporation expects to retire $2,500,000 of short-term debt with the proceeds from the sale of 75,000 shares of common stock. If the stock is sold for $20 per share subsequent to the balance sheet date but before the balance sheet is issued, the company can exclude the full amount of $2,500,000 from current liabilities, as the proceeds from the stock sale ($1,500,000) will be used to retire this debt. The correct answer is b. $2,500,000, which is the amount of short-term debt that could be excluded from current liabilities.