On December 31, 2018, L Inc. had a $1,500,000 note payable outstanding, due July 31, 2019. L borrowed the money to finance construction of a new plant. L planned to refinance the note by issuing long-term bonds. Because L temporarily had excess cash, it prepaid $500,000 of the note on January 23, 2019. In February 2019, L completed a $3,000,000 bond offering. L will use the bond offering proceeds to repay the note payable at its maturity and to pay construction costs during 2019. On March 13, 2019, L issued its 2018 financial statements. What amount of the note payable should L include in the current liabilities section of its December 31, 2018, balance sheet?

Question

Ingrid Acosta

Business

20 October, 02:43

On December 31, 2018, L Inc. had a $1,500,000 note payable outstanding, due July 31, 2019. L borrowed the money to finance construction of a new plant. L planned to refinance the note by issuing long-term bonds. Because L temporarily had excess cash, it prepaid $500,000 of the note on January 23, 2019. In February 2019, L completed a $3,000,000 bond offering. L will use the bond offering proceeds to repay the note payable at its maturity and to pay construction costs during 2019. On March 13, 2019, L issued its 2018 financial statements. What amount of the note payable should L include in the current liabilities section of its December 31, 2018, balance sheet?

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Answers (1)

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Brooke Perry · Answer 1

The current liability for the year end is $500,000

Explanation:

The reason is that the Generally Accepted Accounting Practices says that the current laibilities are those that are intended to be paid by the company in the next coming 12 months at a specific date and also that the company is financially capable of paying off the long-term liability. The company here intents to payoff $500,000 and also has financial ability to payoff the liability in the next 12 months at 31 December, 2018.

This means that the remainder of the $1500,000 after deducting the current liability is non current liability or long term liability.