Question

The controllers of Metlock, Inc. and Bridgeport Corp. both ask you whether their companies can reclassify short-term obligations as long-term. Here are the facts surrounding both companies’ short-term debt.

Bridgeport Corp. On December 31, 2017, Bridgeport Corp. has $2,400,000 of short-term notes payable to Indiana Bank & Trust. The notes are due on January 31, 2018. Bridgeport retired the notes, along with $160,000 in accrued interest, in full on January 31, 2018. On February 11, 2018, Bridgeport obtained $3,600,000 in long-term financing from Terre Haute Bank & Trust. The new debt bears interest at 5 percent, with interest payments due annually. Bridgeport will issue its December 31, 2017 financial statements on February 28, 2018.

Prepare partial balance sheets for Metlock, Inc. and Bridgeport Corp. at December 31, 2017, showing how both companies’ short-term debt should be presented.

Answer 1

Short term notes payable amounting to $24,00,000 in the books of Bridgeport Corporation is due for payment on Jan 31, 2018 i.e, one month after the reporting period and hence it should be classified as Short term debts as the period is less than 12 months.

With regard to loan borrowed on February 11, 2018 amounting to$36,00,000 from Terre Haute Bank & Trust has to be disclosed only by way of notes to accounts since it is beyond the Reporting period. The fact that this loan is obtained before the date of signing the Financial statements does not affect the position as on 31st December 2017.

Extract of Balance Sheet Bridgeport Corp as at 31 Dec 2017
Liabilities	Amount	Assets	Amount
Short term Obligation
Loan from Indiana Bank & Trust	24,00,000
Notes to Accounts
A loan from Terre Haute bank has been obtained on 11 Feb 2018 amounting to $36,00,000 bearing interest @ 5%

Note: Information with regard to Metlock Inc., has not been provided in the question.