Illustrative Problem 2: On May 1, 2020, Pepper Company issued a P 900,000, 2-year promissory note to Rain Co. in exchange for an equipment. Reporting date is on December 31, 2020 while the date the financial statements are authorized for issue is on March 31, 2020. Required: What is the proper classification (current or noncurrent) under the following situations: 1. Pepper intends to settle the note on the maturity date. 2. On April 30, 2021, Pepper entered into an agreement with Rain to refinance the obligation for another 2 years from the date of maturity. 3. On March 1, 2021, Pepper breaches a covenant related to the obligation and the loan becomes payable on demand. On the same date, Rain agreed to give Pepper a grace period of 1 year from the date of breach. 4. On November 1, 2020, Pepper breaches a covenant related to the obligation and the loan becomes payable on demand. On the same date, Rain agreed to give Pepper a grace period of 1 year from the date of breach. 5. On October 1, 2020, Pepper breaches a covenant related to the obligation and the loan becomes payable on demand. On the same date, Rain agreed to give Pepper a grace period of 1 year after the reporting date. 6. On September 1, 2020, Pepper breaches a covenant related to the obligation and the loan becomes payable on demand. On the same date, Rain agreed to waive the breach and give Pepper a second chance.
Illustrative Problem 2: On May 1, 2020, Pepper Company issued a P 900,000, 2-year promissory note to Rain Co. in exchange for an equipment. Reporting date is on December 31, 2020 while the date the financial statements are authorized for issue is on March 31, 2020. Required: What is the proper classification (current or noncurrent) under the following situations: 1. Pepper intends to settle the note on the maturity date. 2. On April 30, 2021, Pepper entered into an agreement with Rain to refinance the obligation for another 2 years from the date of maturity. 3. On March 1, 2021, Pepper breaches a covenant related to the obligation and the loan becomes payable on demand. On the same date, Rain agreed to give Pepper a grace period of 1 year from the date of breach. 4. On November 1, 2020, Pepper breaches a covenant related to the obligation and the loan becomes payable on demand. On the same date, Rain agreed to give Pepper a grace period of 1 year from the date of breach. 5. On October 1, 2020, Pepper breaches a covenant related to the obligation and the loan becomes payable on demand. On the same date, Rain agreed to give Pepper a grace period of 1 year after the reporting date. 6. On September 1, 2020, Pepper breaches a covenant related to the obligation and the loan becomes payable on demand. On the same date, Rain agreed to waive the breach and give Pepper a second chance.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable
Section: Chapter Questions
Problem 13C
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Transcribed Image Text:Illustrative Problem 2: On May 1, 2020, Pepper Company issued a P 900,000, 2-year promissory note to Rain Co. in
exchange for an equipment. Reporting date is on December 31, 2020 while the date the financial statements are authorized
for issue is on March 31, 2020.
Required: What is the proper classification (current or noncurrent) under the following situations:
1. Pepper intends to settle the note on the maturity date.
2. On April 30, 2021, Pepper entered into an agreement with Rain to refinance the obligation for another 2 years
from the date of maturity.
3. On March 1, 2021, Pepper breaches a covenant related to the obligation and the loan becomes payable on
demand. On the same date, Rain agreed to give Pepper a grace period of 1 year from the date of breach.
4. On November 1, 2020, Pepper breaches a covenant related to the obligation and the loan becomes payable
on demand. On the same date, Rain agreed to give Pepper a grace period of 1 year from the date of breach.
5. On October 1, 2020, Pepper breaches a covenant related to the obligation and the loan becomes payable on
demand. On the same date, Rain agreed to give Pepper a grace period of 1 year after the reporting date.
6. On September 1, 2020, Pepper breaches a covenant related to the obligation and the loan becomes payable
on demand. On the same date, Rain agreed to waive the breach and give Pepper a second chance.
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