Question

Swifty owes $2.2 million that is due on February 28. The company borrows $1670000 on February 25 (5-year note) and uses the proceeds to pay down the $2.2 million note and uses other cash to pay the balance. How much of the $2.2 million note is classified as long-term in the December 31 financial statements?a. $2,000,000.b. $0.c. $1,600,000.d. $400,000.

Answer 1

Answer: b. $0

Explanation:

Long-term liabilities are those that the company will owe for more than one trading period of the company which is usually a year. If the debt is going to be repaid within a year, it will be considered short term.

The $2.2 million is payable on February 28 which means that on 31 December, it is less than a year till it is paid. All of it therefore is to be considered short term and no portion considered long.