Question

he controllers of Metlock, Inc. and Bridgeport Corp. both ask you whether their companies can reclassify short-term obligations as long-term. Here are the facts surrounding both companies’ short-term debt.

On December 31, 2017, Metlock, Inc. has $1,600,000 of short-term debt in the form of notes payable to Michaels State Bank due February 5, 2018. On January 28, 2018, Metlock issued 16,000 shares of common stock at $75 per share. Metlock used the proceeds of $1,200,000 from the stock issuance, along with $520,000 in cash to retire the short-term debt and associated accrued interest on February 5, 2018. Metlock will issue its December 31, 2017 financial statements on February 25, 2018.

Prepare partial balance sheets for Metlock, Inc. and Bridgeport Corp. at December 31, 2017, showing how both companies’ short-term debt should be presented

Answer 1

Short term notes payable amounting to $16,00,000 in the books of Metlock Inc is due for payment on Feb 5 , 2018 i.e, one month and five days after the reporting period and hence it should be classified as Short term debts as the period is less than 12 months.

With regard to issue of Share Capital on January 28, 2018 amounting to $12,00,000 from public has to be disclosed only by way of notes to accounts since it is beyond the Reporting period. The fact that the issue of shares before the date of signing the Financial statements does not affect the position as on 31st December 2017.

Extract of Balance Sheet Metlock Inc
Liabilities	Amount in $	Assets	Amount
Short term Obligation
Loan from Michaels State Bank	16,00,000
Notes to Accounts
On January 28, 2018, Metlock Inc issued 16,000 shares of common stock at $75 per share.