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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Situation

You are the assistant accountant for Tyler Corporation. It is mid-January 2020 and you are helping to prepare Tyler’s balance sheet for December 31, 2019. Tyler will publish this balance sheet on March 1, 2020, after the auditors have completed their work. Tyler has a $100,000 note payable that was issued in 2018 and that is due March 6, 2020. On January 5, 2020, Tyler sold 2,000 shares of its $10 par common stock for $80,000. Its intent is to use these proceeds (plus $20,000 cash it already has on hand) to repay the note payable on March 6. The head accountant says “I’m not sure how to classify the $100,000 note payable on the December 31, 2019, balance sheet. Check this out for me.”

Directions

Research the related generally accepted accounting principles and prepare a short memo to the head accountant that explains how Tyler should report the $100,000 note payable on its December 31, 2019, balance sheet.

To determine

Research the related generally accepted accounting principles and prepare a short memo explaining the reporting of the note payable on the balance sheet of Corporation T.

Explanation

Generally Accepted Accounting Principles (GAAP): These are the guidelines necessary to create accounting principles for the implementation of financial information reporting.

Memo

From

Assistant Accountant

To

Head Accountant

Re:  Related generally accepted accounting principles and the reporting of the note payable.

I have done a research regarding the manner, in which the note payable of $100,000 could be reported on the balance sheet of Corporation T’s balance sheet for December 31, 2019 Company issued common stock for $80,000 on January 5, 2020 and anticipates to repay the note payable on March 6 and this situation comes under the classification of a “short-term obligation expected to be refinanced. “As per FASB ASC 470- 10-45-13 and 14, company may exclude a “short-term obligation from its current liabilities” if it is intention is to refinance the debt on a long-term basis and if it has the capacity to do so.

The ability of the company to refinance its short-term debts can be revealed by the issuance of equity securities after the date of its balance sheet but before the date, balance sheet is issued. As per, “FASB ASC 470-10- 45-16”, the amount of the short-term obligation which is excluded from current liabilities might not exceed the earnings of the equity securities issued...

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