A firm constructing a new manufacturing plant and financing it with short-term loans that are scheduled to be converted to first mortgage bonds when the plant is completed, would want to separate the construction loan from other current liabilities associated with working capital management.

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This is because the construction loan is a long-term financing source for a capital expenditure, whereas working capital management is focused on short-term operational needs. The firm would want to differentiate between the two in order to better track and manage its financial obligations. Separating the construction loan from other current liabilities would make it easier to determine the firm's overall debt position and liquidity.

A Firm Constructing a New Manufacturing Plant and Financing It