Branch Company, a building materials supplier, has $18,000,000 of notes payable due April 12, 2014. At December 31, 2013, Branch signed an agreement with First Bank to borrow up to $18,000,000 to refinance the notes on a long-term basis. The agreement specified that borrowings would not exceed 75% of the value of the collateral that Branch provided. At the date of issue of the December 31, 2013, financial statements, the value of Branch's collateral was $20,000,000. On its December 31, 2013, balance sheet, Branch should classify the notes as follows:
A)$15,000,000 long-term and $3,000,000 current liabilities.
B)$4,500,000 short-term and $13,500,000 current liabilities.
C)$18,000,000 of current liabilities.
D)$18,000,000 of long-term liabilities.

Question

Quizplus · Accepted Answer

The notes payable are classified as long-term liabilities because Branch has the ability to refinance the notes on a long-term basis.

Branch Company, a Building Materials Supplier, Has $18,000,000 of Notes