Question

RL Enterprises places a $750,000 short-term liability in the long-term liability section of its financial statements. It then includes a note giving a description of a new financing agreement for the liability and describes the terms that would be incurred by the new obligation. Which of the following can you assume based on this information?

Answer 1

Answer:

RL intends to and has demonstrated the ability to refinance the short term liability on a long term basis.

Explanation:

First of all, RL intends to refinance the short term liability but has not completed the process yet. What it is showing in the balance sheet is that they have the intention to do it, and that they have already negotiated with their debtors the refinancing procedure, but the procedure is not over yet. Refinancing a debt sometimes may take a long time specially due to legal paperwork (e.g. register an asset as collateral), but RL is showing that the process has already been agreed upon with the creditors and all they need is time to finish it.