CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

Which of the following conditions would allow a firm to classify a short-term liability as a long-term debt?

I. The firm has issued a long-term note with the stated purpose of extinguishing the short-term debt when it matures. The note is cancelable if there are violations of certain operating provisions.
II. The firm has entered into a binding agreement with a bank to refinance the short-term debt with a long-term liability.
III. The firm has announced that it will continue to refinance the debt with available credit for the next 2 years.
Correct Answer: II only

If these agreements have any provisions for cancellation which are either ambiguous or which have a good probability of being violated, then the short-term debt cannot be classified as long-term debt. That's why (I) is not a valid choice. (III) is not acceptable because there is no demonstration of credible intent or ability to be able to refinance the debt.

User Contributed Comments 3

User Comment
bundy Binding is the key word here choice III is not binding, therefore it is just a "fart in the wind" until they actually make the commitment
johntan1979 Watch out for the silent ones... they stink the most
ashish100 i'm convinced johntan is asian now. the silent fart joke is popular in the east
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