Question

Classifying Refinanced Debt

Maple Leaf Co. has a $50,000, 5%, 10-year note issued July 31, 2011.

a. How will the $50,000 be classified on the December 31, 2020, balance sheet?

b. If the $50,000 is refinanced into a five-year note on January 31, 2021 (before the 2020 financial statements are issued), how will the $50,000 note payable be classified on the December 31, 2020, balance sheet?

Answer 1

A.)

Note payable of amount $50,000 will be shown as current liability and the interest amount accrued on the note payable for 5 months from August 1st to December 31 2020 will be recorded under liability side as interest payable if not paid

Interest amount = 50000*5%*5/12=1041.67

B.) If company refinance the current note Payable into long term liability of 5 years, first it will give the accrued interest on the notes Payable for one year and after that and Accounting entries will be passed where old notes payable will be debited and the new note payable for long term will be credited and the new note payable will be shown under the liability side of the balance sheet but not under the current liability.