Question

Ermler Corporation has $1,800,000 of short-term debt it expects to retire with proceeds from the sale of 60,000 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. $1,200,000
b. $1,800,000
c. $600,000
d. $0

Answer 1

The amount of short-term debt that could be excluded from current liabilities for the Ermler Corporation, after selling 60,000 shares at $20 each, is $1,200,000. This is because the sale proceeds amount to $1,200,000, which can be used to retire part of the existing debt.

Step-by-step explanation:

The subject question relates to accounting practices and the classification of debt in financial statements. Specifically, it examines what amount of short-term debt could be excluded from current liabilities for the Ermler Corporation, following a sale of shares subsequent to the balance sheet date but before it is issued.

If the stock is sold for $20 per share and there are 60,000 shares being sold, the corporation will raise $1,200,000 (20 x 60,000). This is the amount that can be used to retire the short-term debt. Since the total short-term debt is $1,800,000, and the amount raised is less than the total debt, only the raised amount of $1,200,000 can be excluded from current liabilities. Therefore, the correct answer is (a) $1,200,000.