Question

Jump Corporation has $3,000,000 of short-term debt it expects to retire with proceeds from the sale of 85,000 shares of common stock. If the stock is sold for $25 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. $2,125,000
b. $3,000,000
c. $875,000
d. $0

Answer 1

The correct answer is option b. $3,000,000.

Step-by-step explanation:

The correct answer to the question about how much short-term debt can be excluded from current liabilities after the sale of shares by Jump Corporation is option b, $3,000,000. If Jump Corporation sells 85,000 shares at $25 per share, the total proceeds from the sale will be 85,000 shares × $25/share = $2,125,000.

However, since the question states that Jump Corporation expects to retire $3,000,000 of short-term debt with the proceeds from the sale of common stock, it implies that the company has or anticipates additional funds to cover the full amount of the debt.

Therefore, when the balance sheet is issued, it could exclude the full $3,000,000 of short-term debt from current liabilities, assuming that the retirement of the debt has been completed or is imminent.