Cooper's inventory has been financed 100% with a long-term note. The note is coming due in 2014. Cooper has received a commitment from a new lender that permits five-year refinancing of debt up to an amount equal to 50% of inventory, which is expected to range between $14,000 and $20,000 in 2014. At December 31, 2013, how much of the company's currently maturing note payable can be classified as long-term debt?
A) $7,000
B) $6,000
C) $10,000
D) $9,000

Question

Quizplus · Accepted Answer

The new lender's commitment allows refinancing up to 50% of the inventory. The maximum inventory expected is $20,000, so 50% of that is $10,000. However, since the note is coming due, only the amount that can be refinanced can be classified as long-term. Therefore, $7,000 (50% of the minimum expected inventory of $14,000) can be classified as long-term debt.

Cooper's Inventory Has Been Financed 100% with a Long-Term Note