s 5-9 are based on the following facts for Montana Company. Montana Company is preparing its balance sheet dated December 31, 2017. Included among Montana's liabilities are $1,000,000 10-year bonds that were issued at par on June 1, 2008. The bonds mature on June 1, 2018 thus at December 31, 2017 they qualify as short-term obligations). The bonds have been reported as long-term debt in balance sheets presented by Montana Company prior to the current year. At issue is whether or not the debt maturing on June 1, 2018 should be excluded from current liabilities in the December 31, 2017 balance sheet. The financial statements for 2017 will not be issued (made public) until March 1, 2018. Note: Short-term obligations that are properly excluded from current liabilities are reported as "long-term debt" or they may be reported between current liabilities and long-term debt with an appropriate caption such as "short-term obligations expected to be refinanced." The following time line might be helpful in answering some of the questions. 5. 12/31/17 Balance sheet date ($1M liability to be reported) 3/1/18 Date the balance sheet is to be issued 6/1/18 Maturity date of the $1,000,000 debt Disregarding the $1,000,000 debt, assume that Montana Company has current assets of $500,000, current liabilities of $200,000, and no other debt. Assume also that Montana's current ratio has historically been about 2.5 to 1. What will Montana's current ratio be if the long-term debt coming due is reported as a current liability? Four independent situations are described below. For each situation, indicate how much of the $1,000,000 debt should be reported on the 12/31/17 balance sheet as a current liability (C/L) and how much should be reported as a long-term liability (LT/L). 6. Montana intends to retire the debt with a fund it has accumulated for the purpose of retiring the bonds. The fund has a balance of $1,000,000. Montana has been reporting the fund as a long-term investment on its balance sheet. C/L: $ Reason: 7. LT/L: $ $1,000,000 On February 1, 2018; Montana received $1,000,000 by issuing 8-year notes. Montana intends to use these proceeds to retire the $1,000,000 bonds when they mature on June 1. C/L: $ LT/L: $ Reason: $1,000,000 8. 9. On February 1, 2018 Montana received $750,000 by issuing 50,000 shares of its common stock Montana intends to apply all of these proceeds to retire 3/4 of the bonds maturing on June 1. Montana intends to retire the rest of the bonds by borrowing $250,000 from its bank at a later date. No formal borrowing arrangement has been entered into by the date the balance sheet is issued. C/L: $ LT/L: $ $1.000.000 Reason: Montana intends to retire the debt by borrowing $1,000,000 on a long-term basis. On February 15, 2018 Montana entered into a non-cancelable agreement with the bank to provide these funds on or before June 1, 2018. The bank is fully capable of honoring the agreement and Montana Company in full compliance with all conditions set forth in the agreement. C/L: $ LT/L: $ $1,000,000 Reason