Jettison Manufacturing has been planning an expansion of its manufacturing facilities. As a result, in year 1, it obtained a $2 million long-term loan from National Bank. According to the debt agreement between the two parties, Jettison Manufacturing is required to maintain a current ratio of 2:1 or greater. At year-end, the controller concluded that the current ratio was only 1:1, and, therefore, Jettison was in violation of the debt agreement, requiring the loan to be paid to National Bank within six months.
Since Jettison was unable to obtain any concessions from National Bank, Jettison reclassified the long-term debt as a current liability. However, within the first three months of the next year, Jettison has been able to correct the debt agreement violation and restore the current ratio to 2.2:1, which is acceptable to National Bank. Therefore, the debt does not have to be repaid early.
In preparing year 2’s financial statements, the controller is perplexed as to how to classify the debt—short term or long term? As controller, your assistance is necessary to settle the issue.

Required: 

Utilize the FASB Codification to determine the proper classification of the debt. What specific Codification references did you use in preparing your answer?