Question

Based on the Notes Payable Schedule (N-1), the $12,000,000 notes is classified as noncurrent liability. Is this classification appropriate? If not, make the necessary adjusting entry. (hint: refer to the bank confirmation on page 72) (1 point)

Apollo Shoes, Inc.								N-1
Notes Payable Schedule							Prepared by
For Year Ended 12/31/2017							Reviewed by
PBC		(Audited)					Unaudited
		Balance					Balance
Acct #	Account Title	12/31/16		Additions		Payments	12/31/17
27000	Notes Payable-Noncurrent	$0.00	2/2/17	$12,000,000.00			$12,000,000.00
24100	Line of Credit	$10,000,000.00	7/1/17	$44,403,000.00	2/2/17	$10,000,000.00	$44,403,000.00
24200	Current Portion Long-Term Debt	$0.00					$0.00
		$10,000,000.00		$56,403,000.00		$10,000,000.00	$56,403,000.00

page 72 confrimation

STANDARD FORM TO CONFIRM ACCOUNT

BALANCE INFORMATION WITH FINANCIAL INSTITUTIONS

                                                                                                Apollo Shoes, Inc

                                           CUSTOMER NAME

FINANCIAL INSTITUTION'S NAME AND ADDRESS

Twenty First National Bank Post Office Box 1 Shoetown, ME 00002

We have provided to our accountants the following information as of the close of business on 12/31/2017, regarding our deposit and loan balances. Please confirm the accuracy of the information, noting any exceptions to the information provided. If the balances have been left blank, please complete this form by furnishing the balance in the appropriate space below.* Although we do not request nor expect you to conduct a comprehensive, detailed search of your records, if during the process of completing this confirmation additional information about other deposit and loan accounts we may have with you comes to your attention, please include such information below. Please use the enclosed envelope to return the form directly to our accountants.

1. At the close of business on the date listed above, our records indicated the following deposit balance(s):

ACCOUNT NAME	ACCOUNT NO.	INTEREST RATE	BALANCE*
General Cash Account Payroll Account Savings Account	604-17-526-5 604-29-016-3 604-03-739-8	n/a n/a 3.2%	3,309,192.03 0 3,645,599.15

2. We were directly liable to the financial institution for loans at the close of business on the date listed above as follows:

ACCOUNT NO./ DESCRIPTION	BALANCE*	DATE DUE	INTEREST RATE	DATE THROUGH WHICH INTEREST IS PAID	DESCRIPTION OF COLLATERAL
Note#106316 Line of Credit, Acct#7500438	12,000,000 44,403,000	1/1/2018 20158(revolving)	8.15% 9.16%	11/30/2017 11/30/2017	Inventory Inventory

                     E.P Unum                             1/9/2018

(Customer's Authorized Signature                            (Date)

The information presented above by the customer is in agreement with our records. Although we have not conducted a comprehensive, detailed search of our records, no other deposit or loan accounts have come to our attention except as noted below.

               I.M. Rich                      1/13/2018

(Financial Institution Authorized Signature)                (Date)

EXCEPTIONS AND OR COMMENTS

No exceptions noted.

Please return this form directly to our accountants:

Andersen, Olds, and Watershed, LLP 32nd Financial Avenue Shoetown, ME 00002

* Ordinarily, balances are intentionally left blank if they are not available at the time this form is prepared.

Approved 1990 by American Bankers Association, American Institute of Certified Public Accounts, and Bank Administration Institute. Additional forms available from: AICPA - Order Department, P.O. Box 1003 NY, NY 10108-1003

Answer 1

CURRENT LIABILITIES ON THE BALANCE SHEET

Current liabilities are ones the company expects to settle within 12 months of the date on the balance sheet. Settlement comes either from the use of current assets such as cash on hand or from the current sale of inventory. Settlement can also come from swapping out one current liability for another.

At present, most liabilities show up on the balance sheet at historic cost rather than fair value. And there’s no GAAP requirement for the order in which they show up on the balance sheet, as long as they are properly classified as current.

Here’s a brief description of each:

Short-term notes payable: Notes due in full less than 12 months after the balance sheet date are short term. For example, a business may need a brief influx of cash to pay mandatory expenses such as payroll. A good example of this situation is a working capital loan, which a bank makes with the expectation that the loan will be paid back from collection of accounts receivable or the sale of inventory.

In the present situation based on the Notes Payable Schedule (N-1), the $12,000,000 notes is classified as noncurrent liability (Addition date - 02-02-2017 & Repayment due date - 01-01-2018), Interest is payable thereon @ 8.15% as on 30-11-2017.

Hence proved that $12,000,000 notes should have been classified as current liability instead of noncurrent liability, accordingly adjustment entry should be passed

(Dr). Notes payable non current A/c, $12,000,000

(Cr). Notes payable current A/c,* $12,000,000

(Being Notes payable A/c classified into correct accounting head as current liability)

*Note- Notes payable current A/c may be named as current portion of Long term debt or Line of Credit.