Management has both the intent and the ability to refinance a liability maturing in four months by taking out a new loan at the due date, which would not be due for several years. How would this situation be reported in financial statements prepared as of today's date?
A) The original liability is classified as current, with a footnote describing management's plan for refinancing.
B) The original liability is classified as current and the new loan is reported as a long-term liability.
C) The original liability is classified as long-term; the new loan is not included in liabilities at this date.
D) The original liability need not be reported at all; only the new loan is reported as a long-term liability.

Question

Quizplus · Accepted Answer

The original liability can be classified as long-term if management has both the intent and ability to refinance it on a long-term basis. The new loan is not yet a liability as of the reporting date.

Management Has Both the Intent and the Ability to Refinance