C is corrent. Per ASC 470-10-45-14, an enterprise may exclude a short-term obligation from current liabilities only if (1) it intends to refinance the obligation on a long-term basis and (2) it demonstrates an ability to consummate the refinancing. The $50,000 current installment of the 14% debentures qualify for exclusion because those debentures were actually refinanced on a long-term basis. When a financing agreement is used to provide evidence of ability to consummate, the agreement must: be noncancelable, be long-term, and possess readily determinable terms. In addition, the company must not be in violation of the agreement, and both the lender and investor must be financially capable of honoring the agreement. Since all these requirements are met by the described financing agreement, the $30,000 note payable may also be excluded from current liabilities. Therefore, $80,000 would be properly excluded.
A is incorrect because the $50,000 current installment of the 14% debentures also qualify for exclusion because those debentures were actually refinanced on a long-term basis.
B is incorrect because when a financing agreement is used to provide evidence of ability to consummate, the agreement must: be noncancelable, be long-term, and possess readily determinable terms. In addition, the company must not be in violation of the agreement, and both the lender and investor must be financially capable of honoring the agreement. Since all these requirements are met by the described financing agreement, the $30,000 note payable may also be exluded from current liabilities.
D is incorrect becaue per ASC 470-10-45-14, an enterprise may exclude a short-term obligation from current liabilities only if (1) it intends to refinance the obligation on a long-term basis and (2) it demonstrates an ability to consummate the refinancing.
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