Facts: Argent Corporation reports short-term obligations of $15,000,000 in the current liability section of its statement...

Facts: Argent Corporation reports short-term obligations of $15,000,000 in the current liability section of its statement of financial position at December 31, 2020 (its year-end). This amount includes the current portion of 12% long-term debt in the amount of $10,000,000 (matures in March 2021). Management has stated its intention to refinance the 12% debt whereby no portion of it will mature during 2021. The financial statements are issued on March 25, 2021.

Question 1: Based solely on the above facts, would management be correct under US GAAP if they classified the $10,000,000 portion of the above debt as long-term as of 12/31/2020? Why or why not?

Question 2: Using the same fact pattern, now assume that Argent Corporation issues $13,000,000 of 10-year bonds to the public on January 18, 2021 and management uses the proceeds to liquidate the $10,000,000 short-term debt on February 8, 2021.

Question 3: Would the classification of the $10,000,000 debt at December 31, 2020 be the same under IFRS and US GAAP? Explain your answer.

Solutions

Expert Solution

Answer :

No. IFRS indicate that refinancing a short-term obligation on a long-term basis also requires that a company have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

No. The events described will not have an impact on the financial statements. Since Argent Corporation’s refinancing of the longterm debt maturing in March 2021 does not meet the conditions set forth in IFRS that obligation should be included in current liabilities. The $10,000,000 should continue to be classified as current at December 31, 2020. A short-term obligation, other than one classified as a current liability, shall be excluded from current liabilities if the entity’s intent to refinance the short-term obligation on a long-term basis is supported by an unconditional right to defer the settlement of the liability for at least 12 months after the reporting date.

Yes. The debt should be included in current liabilities. The issuance of ordinary shares in January does not meet the criteria to have an unconditional right to defer the settlement of the liability for at least 12 months after the reporting date.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

A current liability is a short-term obligation that is normally expected to be settled within one...

A current liability is a short-term obligation that is normally expected to be settled within one year. For each of the following events and transactions that occurred in November 2017, indicate the title of the current liability account that is affected and the amount that would be reported on a statement of financial position prepared on December 31, 2017. If an event does not result in a current liability, explain why. a) A customer purchased a ticket from WestJet Airlines...

1) If a notes payable is reclassified from a long-term liability to a short-term liability, then...

1) If a notes payable is reclassified from a long-term liability to a short-term liability, then A The amount of total liabilities stays the same B The total liabilities increase C Current liabilities decrease D Long-term liabilities decrease 2) On October 1, 2025, Conway, Inc. borrowed $300,000 by signing a nine-month, 6% note payable. Interest was accrued on December 31, 2025. What is the journal entry on July 1, 2026, the date the note was paid? 3) Jackson Company pays...

Question1 The______ratio measures the extent to which a firm is able to cover its short-term obligations...

Question1 The______ratio measures the extent to which a firm is able to cover its short-term obligations (usually due within the next year) with its short-term assets a. ROE b. Dept to assets ratio c. Expense ratio d. Quick ratio e. Current Ratio Question2. Which of the following statements regarding the balance sheer is NOT correct? a. The balance sheet reports stockholders' equity on the right side b. The balance sheet provides a snapshot of the firm's financial position at a...

For Short Term Memory, give information on the following facts on Short Term Memory.: 1. Features...

For Short Term Memory, give information on the following facts on Short Term Memory.: 1. Features 2. Functions 3. Strengths 4, Weaknesses 5. Examples

Prepare journal entries for the dates and statement of equity section Context Corporation reports the following...

Prepare journal entries for the dates and statement of equity section Context Corporation reports the following components of shareholders’ equity on December 31, 20X3: Common stock - $10 par value; 50,000 shares authorized 20,000 shares issued and outstanding....................... $200,000 Paid-in capital in excess of par value, common stock....... $30,000 Retained earnings...........................................$135,000 In the year 20X4, the following transactions affected its shareholders’ equity accounts: January 1: Purchased 2,000 shares of its own stock at $20.00 cash per share. January 5: Directors...

The Yellow Corporation reports a deferred income tax liability of $732,000 in its December 31, Year...

The Yellow Corporation reports a deferred income tax liability of $732,000 in its December 31, Year One, balance sheet. a. Why are differences created between a company’s reported net income and the taxable income figure shown on its income tax return? b. What is meant by the term “temporary tax difference”? c. In general, what is the meaning of a deferred income tax liability? d. In analyzing a company, liabilities are generally viewed as a negative. Why do company officials...

The Yellow Corporation reports a deferred income tax liability of $732,000 in its December 31, Year...

1. The members of a limited liability company are fully liable for its obligations. True or...

1. The members of a limited liability company are fully liable for its obligations. True or False. 2. A foreign corporation is a corporation formed in another country. True or False. 3. In ethical terms, a cost-benefit analysis is an assessment of the negative and positive effects of alternative actions on groups or individuals. True or False. 4. A corporation is an artificial being. True or False. 5. A default judgement is a judgement entered against the party who brought...

Classify each of the following items as current liability (CL), long-term liability (LT), contingent liability (CO),...

Classify each of the following items as current liability (CL), long-term liability (LT), contingent liability (CO), estimated liability (EL), disclosure only (DO) or no liability (NL) place an X in the box (Note: There are special sections for Classifying Liabilities, Estimated Liabilities and Contingent Liabilities. You will need to review all of them to get this chart right) Account CL LT CO EL DO NL Federal income taxes withheld Lawsuit against the company considered probable and not estimable at this...

(Current versus Long-Term Liabilities) Samson Corporation is preparing its December 31, 2020 statement of financial position....

(Current versus Long-Term Liabilities) Samson Corporation is preparing its December 31, 2020 statement of financial position. The following items may be reported as either current or long-term liabilities: 1. On December 15, 2020, Samson declared a cash dividend of $1.50 per common share to shareholders of record on December 31. The dividend is payable on January 15, 2021. Samson has issued 1 million common shares. 2. Also, on December 31, Samson declared a 10% stock dividend to shareholders of record...

Subjects