Bramble owes $2.9 million that is due on February 28. The company borrows $2,340,000 on February 25 (5-year note) and uses the proceeds to pay down the $2.9 million note and uses other cash to pay the balance. How much of the $2.9 million note is classified as long-term in the December 31 financial statements?

Question

Castillo

Business

5 December, 07:38

Bramble owes $2.9 million that is due on February 28. The company borrows $2,340,000 on February 25 (5-year note) and uses the proceeds to pay down the $2.9 million note and uses other cash to pay the balance. How much of the $2.9 million note is classified as long-term in the December 31 financial statements?

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Answers (1)

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Trace Keith · Answer 1

It is $2,340,000

Explanation:

Since the old debt of $2.9 million has been discharged using new debt issued of $2,340,000 and some cash, the value of the new debt issued will be recognized as a new liability.

However, the balance that will be recognized as long-term will be the liability that is payable after one year while the element that is payable within a year will be recognized under current liability in the financial statement at the end of the year.