Question

arton owes $3 million that is due on February 28. The company borrows $2,400,000 on February 25 (5-year note) and uses the proceeds to pay down the $3 million note and uses other cash to pay the balance. How much of the $3 million note is classified as short-term in the December 31 financial statements

Answer 1

Barton

$3 million is classified as short-term in the December 31 financial statements.

Step-by-step explanation:

Note Payable:

The notes payable due on February 28 had only two months to mature by December 31. Therefore, the amount of $3 million is classified as short-term in the December 31 financial statements.

A short-term debt is a debt that is due for payment within the next 12 months. With a notes payable of $3 million that is due for payment on February 28, the whole amount is classified as short-term. The current year's notes payable of $2.4 million would be classified as long-term debt since it would be due in 5 years' time.