Question

Bramble owes $2.9 million that is due on February 28. The company borrows $2,340,000 on February 25 (5-year note) and uses the proceeds to pay down the $2.9 million note and uses other cash to pay the balance. How much of the $2.9 million note is classified as long-term in the December 31 financial statements?

Answer 1

It is $2,340,000

Step-by-step explanation:

Since the old debt of $2.9 million has been discharged using new debt issued of $2,340,000 and some cash, the value of the new debt issued will be recognized as a new liability.

However, the balance that will be recognized as long-term will be the liability that is payable after one year while the element that is payable within a year will be recognized under current liability in the financial statement at the end of the year.