Question

Under U.S. GAAP, liabilities payable within one year can be excluded from current liabilities only if: A) The business intends to refinance the obligations on a long-term basis. B) The business has the demonstrated ability to refinance the obligations on a long-term basis. C) Both a and b. D) Liabilities payable within one year always must be classified as current liabilities.

Answer 1

Answer:  C) Both a and b.

Explanation:

Liabilities that are payable in a year must always be treated as current liabilities. If a company wants to treat them as long term liabilities that go over a year, they will have to convert them to long term liabilities.

To do that they would have to refinance the payable on a long term basis. They will be able to convert this payables to long term if they not only intend to refinance, but are able to do so as well. This means that if they are unable to acquire the required funding, they won't be able to convert this to a long term payable.