Parton owes $2 million that is due on February 28. The company borrows $1,600,000 on February 25 (5-year note) and uses the proceeds to pay down the $2 million note and uses other cash to pay the balance. How much of the $2 million note is classified as long-term in the December 31 financial statements.
A) $2,000,000.
B) $0.
C) $1,600,000.
D) $400,000.

Question

Quizplus · Accepted Answer

The $1,600,000 borrowed on a 5-year note is used to pay down the original note, effectively refinancing that portion into long-term debt. The remaining $400,000 paid with other cash does not change the classification of the $1,600,000, which is now considered long-term.

Parton Owes $2 Million That Is Due on February 28