Short-Term Debt Expected to Be Refinanced

On December 31, 2019, Carrboro Textile Company had short-term debt in the form of notes payable totaling $900,000. These notes were due on June 1, 2020. Carrboro expected to refinance these notes on a long-term basis. On February 1, 2020, Carrboro entered into an agreement with Worldwide Life Insurance Company whereby Worldwide will lend Carrboro $720,000, payable in 5 years at 12%. The money will be available to Carrboro on May 20, 2020. Carrboro issues its December 31, 2019, year-end financial statements on March 2, 2020.

Required:

Question Content Area

1. Show how the $900,000 notes payable will be classified on Carrboro Textiles balance sheet on December 31, 2019.

CARRBORO TEXTILE COMPANY Partial Balance Sheet December 31, 2019

Current Liabilities:
Notes payable	$fill in the blank c87e93f6903f053_1
Long-Term Liabilities:
Notes payable	fill in the blank c87e93f6903f053_2

Question Content Area

2. If short-term debt that is expected be refinanced is classified as a long-term liability the company has shown

it is probable and reasonably estimableit is reasonably possible and financially flexibleits intent and ability

to refinance at which point it is

materialreliablerepresentationally faithful

to classify the obligation as a long-term liability.