Current—noncurrent classification of debt| | ? LO1 LO4| The balance sheet at December 31, 2011, for Nevada Harvester Corporation includes the liabilities listed below: Required: 1. | | Determine the amount that can be excluded from classification as a current liability (that is, reported as a noncurrent liability) for each. Explain the reasoning behind your classifications. | | | | Solution: 1. a. A Zero dollars will be excluded from current liability because it is callable within year.
Even if the debt is not expected to be called, there is a possibility that creditor has the right to demand.
1. b. Notes payable 5 million will be excluded from current liability and 1 million will be classified as current liability because company has ability to refinance 5 million of the notes is demonstrated by a refinancing agreement. The remaining 1 million must be reported as a current liability. 1. c. Zero dollars will be excluded from current liability since the bond is non callable and the bond matures within the upcoming year.
Therefore, 20 million should be classified as current liabilities.
1. d. 12 million will be excluded from current liability. Even if working capital has fallen below a contractual minimum, the company has ability to correct the existing violation within six months. 2. | | Prepare the liability section of a classified balance sheet and any necessary footnote disclosure for Nevada Harvester at December 31, 2011. Accounts payable and accruals are $22 million. | Solution:
Nevada Harvester Corporation Balance sheet Dec 31, 2011 Current Liabilities: Accounts payable and accruals 22 Million Current portion of long-term debt 40 Million Bonds payable 20 Million Notes payable 1 Million
Total current liabilities 83 Million Noncurrent liabilities: Notes payable 5 Million Bank loan 12 Million Total noncurrent liabilities 17 Million Foot notes: Lines of credit: The Company refinances a loan into a 5 million any time during 2012.
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