CFA Practice Question

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CFA Practice Question

Among a company's short-term obligations on December 31, the balance sheet date, are notes payable totaling $200,000 with the TUV Bank. These are 90-day notes, renewable for another 90-day period. How should these notes be classified on the balance sheet of the company?

A. As current liabilities
B. As deferred charges
C. As long-term liabilities
Correct Answer: A

GAAP requires that debt to be refinanced be classified as current.

User Contributed Comments 6

User Comment
kalps Debt to be refinanced should be classified as ST debt, unless it is refinanced after the balance sheet date but before the accounts are published
quincy I guess in this case, the renewable is still a short-term, so still a current liability. If ST debt refinanced from non-current assets, it should be classfied as LT liability. Anyone has better explanation?
haarlemmer Unless it is financed by non-current liabilities, it is classified as current liabilities, I think.
BandB In the text book, it says,
"Noncurrent interest-bearing liabilities to be settled within 12 months after the balance sheet date can be classified as noncurrent liabilities if : ..........
Please notice, as it mentioned in here, only the oncurrent liabilities will be concerned for whether it is refinanced or rescheduled, so, to my understanding, the reason this is a current liability is simply because the liability itself is a short term note payable. therefore no matter it is refinanced or not, it remains a current liability
johntan1979 Deferred charges?
SKIA BandB you are absolutely correct. It doesn't matter that it is being refinanced; it is a short term note.
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