Which of the following statements is true?
A)If ability to refinance a currently maturing obligation is present, the obligation should be classified as noncurrent debt.
B)If no reasonable estimate can be made of the minimum amount expected to be available for future refinancing, the entire outstanding short-term obligation must be disclosed as a noncurrent obligation.
C)The FASB has concluded that obligations that are due on demand should be classified as a current liability, even though liquidation of the liability is not expected within the next year or operating cycle, whichever is longer.
D)If a refinancing is soon to be accomplished by issuing common stock, a currently maturing short-term obligation should be included in stockholders' equity on the current balance sheet.

Question

Quizplus · Accepted Answer

The FASB has concluded that obligations that are due on demand, such as accounts payable or demand loans, should be classified as a current liability, even though liquidation of the liability is not expected within the next year or operating cycle, whichever is longer. This is because the lender has the right to demand payment at any time, and the borrower would typically have to use its current assets or obtain new financing to satisfy the obligation if it were demanded. The other statements are incorrect. A) The ability to refinance a currently maturing obligation does not necessarily make it noncurrent debt; it may still be classified as short-term if it is not probable that refinancing will occur or the refinancing would result in a substantially different debt structure. B) If no reasonable estimate can be made of the minimum amount expected to be available for future refinancing, the entire outstanding short-term obligation would be disclosed as a current obligation. D) A currently maturing short-term obligation cannot be included in stockholders' equity; it would still be classified as a liability, but the terms of the refinancing would need to be disclosed in the notes to the financial statements.

Which of the Following Statements Is True