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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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Short-Term Debt Expected to Be Refinanced

While examining the 2019 financial statements of Warder Corporation, you found evidence that the following were not included in its current liabilities on the December 31, 2019, balance sheet:

  1. 1. A note payable due and paid by Warder on February 19, 2019. Warder obtained long-term financing equal to this amount paid on February 26, 2019.
  2. 2. Note payable due 2 months after the balance sheet date, with refinancing agreement entered into 4 weeks after the balance sheet date.
  3. 3. Notes payable of Warder’s completely owned subsidiary due its shareholders and payable upon demand.
  4. 4. Deposits from customers on equipment ordered by them from Warder.

Required;

Discuss the assumptions needed for Warder to correctly exclude the previously mentioned items from the December 31, 2019, current liabilities. The balance sheet was issued on March 3, 2020.

To determine

Indicate the assumptions that a Corporation W should use to exclude the previously mentioned items from the December 31, 2019, current liabilities and the balance sheet was issued on the March 3, 2020.

Explanation

Current liabilities:

The obligations owed by a company to creditors and suppliers and are to be paid within a year are referred to as current liabilities.

  • The Corporation W will report the note that were repaid with the existing current assets on February 19 as current liabilities in the balance sheet, as the long term debt that is  to be used for   refinancing  is obtained after the payment done out of current assets. Whereas, if the company has obtained the long-term debt prior to the payment; the amount would have been excluded from the current labilities.
  • The refinancing agreement made by the company must allow the company to borrow the entire amount of the note, as to exclude the full amount from the current labilities...

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