At December 31, 2010, Burr Corporation owes $500,000 on a note payable due Febru

Question

At December 31, 2010, Burr Corporation owes $500,000 on a note payable due February 15, 2011. It issues its audited financials on April 1of each year. How much of the note payable should be considered a current liability under the following circumstances:

a) Burr pays off the note on February 15, 2011 as planned, using company cash.

b) Burr pays off the note on February 15, 2011 as planned, issuing company stock in exchange for the debt.

c) Burr refinances the debt on February 15, 2011 and uses the proceeds from the new long-term debt to pay off the note.

d) Burr tells the auditors that it plans to refinance the debt by February 15, 2011 and even though it has not contacted the bank yet to discuss the refinancing, it has generally been able to secure favorable financing

Explanation / Answer

In all the cases the Note will be treated as Current Laibility as on Dec 31.2010.

A. It will be current liability as the Note repayable on Feb 15.2011as on Dec 31.2010 status , and no decision to extend the same or refinance made on Dec 31.2010.

B. It will be current liability as the Note repayable on Feb 15.2011as on Dec 31.2010 status , and no decision to extend the same or refinance made on Dec 31.2010.

C. It will be current liability as the Note repayable on Feb 15.2011 as on Dec 31.2010 status , and no decision to extend the same or refinance made on Dec 31.2010.

D. It will be current liability as the Note repayable on Feb 15.2011 as on Dec 31.2010 status , and no decision to extend the same or refinance made on Dec 31.2010. Burr tells the auditior about the plan to refinance . but no decision and agreement made as on Dec31.2010.

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