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oee [108]
2 years ago
11

A company intends to refinance a portion of its short-term debt in Year 2 and is negotiating a long-term financing agreement wit

h a local bank. This agreement would be noncancelable and would extend for a period of 2 years. The amount of short-term debt that the company can exclude from its statement of financial position at December 31, Year 1.
a. May exceed the amount available for refinancing under the agreement.
b. Depends on the demonstrated ability to consummate the refinancing.
c. Must be adjusted by the difference between the present value and the market value of the current debt.
d. Is zero unless the refinancing has occurred by year end.
Business
1 answer:
Alexxx [7]2 years ago
4 0

Answer:

Refinancing Short-term Debt

The amount of short-term debt that the company can exclude from its statement of financial position at December 31, Year 1:

b. Depends on the demonstrated ability to consummate the refinancing.

Explanation:

Demonstrating the ability to consummate the refinancing agreement of short-term obligations to long-term obligations enables the borrowing entity to exclude the obligations from its current liabilities and to classify the obligations as noncurrent.  This ability is demonstrated when an entity issues post-balance-sheet-date long-term obligation or equity securities or enters into a financing agreement that meets some criteria. These criteria are that the agreement lasts more than 1 year, is noncancelable by the lender, no agreement violation exists at the balance sheet date, and the lender does not default on the agreement.

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