Management Has Both the Intent and the Ability to Refinance

question 127

Multiple Choice

Management has both the intent and the ability to refinance a liability maturing in four months by taking out a new loan at the due date, which would not be due for several years. How would this situation be reported in financial statements prepared as of today's date?

• A) The original liability is classified as current, with a footnote describing management's plan for refinancing.
• B) The original liability is classified as current and the new loan is reported as a long-term liability.
• C) The original liability is classified as long-term; the new loan is not included in liabilities at this date.
• D) The original liability need not be reported at all; only the new loan is reported as a long-term liability.

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Definitions:

Hollow Sphere

A structural formation, often found in biology, where a spherical cavity is surrounded by a wall or membrane.

Cleavage

Cell division without cytoplasmic addition or enlargement; occurs during the first stage of animal development.

Cell Division

A fundamental biological process where a parent cell divides into two or more daughter cells, essential for growth and reproduction.

Blood Cell Formation

The process of creating new blood cells, also known as hematopoiesis, occurring mainly in the bone marrow.