Suppose that a supervisor asks you to reclassify a short-term note payable as a long-term liability.

a. What effect will this have on the current ratio?

b. Could such an effect be viewed beneficially by a current or prospective lender?

c. How would your answer change if the lender agreed to extend the due date on the loan by 18 months?

d. How would your answer in part b change if a prospective lender also held other long-term liabilities? Why?

e. Consider the ethical implications of reclassifying the note, assuming that you know the note’s maturity is at the end of the current fiscal year. You may assume that the size of the note is significant (or material). As an accountant within the firm, what should/would you do? As the firm’s auditor, how would you view this reclassification?