CPA Study Group
Team up with fellow candidates and conquer your exams.
Should not the loan of $1mn be reported as current liability - it is due within 12 months and there is no agreement to refinance it.
Under sales contract, if a buyer does not make a perfect tender (i.e the goods and delivery does not conform exactly to the contract without any defects), the buyer can reject them. In the given question, both the loads of truck were as per the requirement of the contract. Is Modern Driveways not liable for both loads?
what's the difference between answers 2 and 4? On November 30, Year One, a company borrows $1 million from a bank on a seven-month note paying an annual stated interest rate of 6 percent (the prime interest rate on that date). When the note comes due on June 30, Year Two, the company pays the bank the interest and refinances the $1 million with a new seven-month note at the current prime rate. The company and the bank continue to follow this pattern for years: The interest is paid every seven months and a new note is signed for $1 million to refinance the principal. On December 31, Year Five, the latest interest payment and note signing take place. Once again, this note is for seven months. The company will issue its Year Five financial statements on March 4, Year Six. Which of the following is true concerning the reporting of this liability at the end of Year Five? 1 The note should be reported as a current liability in all cases because it is due in seven months. 2 If the company and the bank sign a non-cancelable agreement on March 1, Year Six that states that the note will continue to be refinanced through the end of Year Six, the company must report the note as a long-term liability. 3 The note should be reported as a long-term liability in all cases because there is sufficient evidence that the note will not be paid with cash or any other current asset. 4 If the company and the bank sign a non-cancelable agreement on February 26, Year Six that states that the note will continue to be refinanced through the end of Year Six, the company may report the note as a long-term liability