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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