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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 Several times during 2019, Palmer Company issued short-term commercial paper totaling $7 million. On December 31, 2019, the company’s year-end, Palmer intends to refinance the commercial paper by issuing long-term debt. However, because Palmer had excess cash, $3 million of the liability is liquidated in February 2020 as the commercial paper matures. On March 1, 2020, Palmer issues $9 million of long-term bonds, with $3 million of the proceeds going to replenish the working capital used to liquidate the $3 million of commercial paper, $4 million to pay the remaining balance of the commercial paper due after April, and the remaining $2 million to finance an equipment modernization program at Palmer’s plant. Palmer’s December 31, 2019, year-end financial statements are issued on March 13, 2020.

Required:

Next Level How will the $3 million of commercial paper liquidated prior to the refinancing be classified on Palmer’s December 31, 2019, balance sheet? Explain your reasoning.

Next Level How will the remaining $4 million of commercial paper be classified on Palmer’s December 31, 2019, balance sheet? Explain your reasoning.

1.

To determine

Describe the way in which the commercial paper of $3 million will be reported in the balance sheet as of December 31, 2019, before the liquidation.

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.

Company C has issued some short-term commercial papers for $7 million in total during the year 2019. Company C proposes to refinance the short-term obligation by issuing long-term debt...

2.

To determine

Describe the way in which the commercial paper of $4 million will be reported in the balance sheet as of December 31, 2019.

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