Question

Van Rushing Hunting Goods’ fiscal year ends on December 31. At the end of the 2021 fiscal year, the company had notes payable of $11.4 million due on February 8, 2022. Rushing sold 4.0 million shares of its $0.25 par, common stock on February 3, 2022, for $8.0 million. The proceeds from that sale along with $3.4 million from the maturation of some 3-month CDs were used to pay the notes payable on February 8. Through his attorney, one of Rushing’s construction workers notified management on January 5, 2022, that he planned to sue the company for $1 million related to a work-site injury on December 20, 2021. As of December 31, 2021, management had been unaware of the injury, but reached an agreement on February 23, 2022, to settle the matter by paying the employee’s medical bills of $73,500. Rushing’s financial statements were finalized on March 3, 2022. Required: 1. What amount(s) if any, related to the situations described should Rushing report among current liabilities in its balance sheet at December 31, 2021? 2. What amount(s) if any, related to the situations described should Rushing report among long-term liabilities in its balance sheet at December 31, 2021? 3. What amount(s) if any, related to the situations described should Rushing report among current liabilities and long-term liabilities in its balance sheet at December 31, 2021 if the settlement agreement had occurred on March 15, 2022, instead? 4. What amount(s) if any, related to the situations described should Rushing report among current liabilities and long-term liabilities in its balance sheet at December 31, 2021 if the work-site injury had occurred on January 3, 2022, instead?

Current Liability =

Long-term Liability = ]

Current Liability =

Long-term Liability =

Current Liability =

Long-term Liability =

Answer 1

Part 1)

What amount(s) if any, related to the situations described should Rushing report among current liabilities in its balance sheet at December 31, 2021?

Solution:

The value that will be reported among current liabilities in the balance sheet at December 31, 2021 is determined as below:

Portion of the Notes Payable not Refinanced through Common Stock Sale (11,400,000 - 8,000,000)	3,400,000
Liability for Employee's Medical Bills	73,500
Total Current Liability	$3,473,500

Answer for Part 1 is $3,473,500

______

Part 2)

What amount(s) if any, related to the situations described should Rushing report among long-term liabilities in its balance sheet at December 31, 2021?

Solution:

The long-term liabilities in the balance sheet at December 31, 2021 will be the same as the amount of notes payable refinanced with the sale of common stock. Therefore, the value of long-term liabilities that will get reported in the balance sheet December 31, 2021 will be $8,000,000.

Answer for Part 2 is $8,000,000

______

Part 3)

What amount(s) if any, related to the situations described should Rushing report among current liabilities and long-term liabilities in its balance sheet at December 31, 2021 if the settlement agreement had occurred on March 15, 2022, instead?

Solution:

The value of current current liabilities and long-term liabilities in the balance sheet at December 31, 2021 if the settlement agreement had occurred on March 15, 2022 is determined as follows:

Total Current Liability	$3,400,000
Total Long-Term Liability	$8,000,000

Answer for Part 3 is $3,400,000 (Total Current Liability) and $8,000,000 (Total Long-Term Liability)

____

Notes:

The value of current liability will be $3,400,000 (value of notes payable not financed through sale of common stock) because the amount of $73,500 towards employee medical bills would not have accrued as a liability on the date on which the financial statements were finalized (March 3, 2022) if the settlement agreement had occurred on March 15, 2022 as against February 23, 2022. The value of long-term liability will continue to be the same as the amount of notes payable refinanced through sale of common stock which is $8,000,000.

______

Part 4)

What amount(s) if any, related to the situations described should Rushing report among current liabilities and long-term liabilities in its balance sheet at December 31, 2021 if the work-site injury had occurred on January 3, 2022, instead?

Solution:

The value of current current liabilities and long-term liabilities in the balance sheet at December 31, 2021 if the work-site injury had occurred on January 3, 2022 is given as follows:

Total Current Liability	$3,400,000
Total Long-Term Liability	$8,000,000

Answer for Part 4 is $3,400,000 (Total Current Liability) and $8,000,000 (Total Long-Term Liability)

____

Notes:

The value of current liability will be $3,400,000 (value of notes payable not financed through sale of common stock) because the amount of $73,500 towards employee medical bills would not have accrued as a liability on December 31, 2021 as the injury occurred on January 3, 2022 and not anytime before December 31, 2021. The value of long-term liability will continue to be the same as the amount of notes payable refinanced through sale of common stock which is $8,000,000.