Choice "B" is correct. Current liabilities at December 31, Year 1 include the accounts payable-trade of $750,000, the short-term borrowings of $400,000 and the $100,000 current portion of the mortgage payable, for a total of $1,250,000. The $1,000,000 bank loan will not be classified as a current liability because the company refinanced the loan on a long-term basis on January 15, Year 2, prior to the issuance of the financial statements on February 28, Year 2.
Choice "c" is incorrect. The short-term borrowing of $400,000 should be included in current liabilities on December 31, Year 1, in addition to the accounts payable of $750,000 and the $100,000 current period of the mortgage payable.
Choice "a" is incorrect. The $100,000 current portion of the mortgage payable should be included in current liabilities, in addition to the accounts payable of $750,000 and the short-term borrowing of $400,000.
Choice "d" is incorrect. The $1,000,000 bank loan will not be classified as a current liability because the company refinanced the loan on a long-term basis on January 15, Year 2, prior to the issuance of the financial statements on February 28, Year 2.