Question

At December 31, 2020, Burr Corporation owes $500,000 on a note payable due February 15, 2021.(a) If Burr had restructured the note on December 15, 2020, such that Burr has the contractual right to defer payment of $250,000 of the note until February 15, 2022, how much of the $500,000 should be reported as a current liability at December 31, 2020

Answer 1

Answer:

$250,000

Explanation:

First and foremost, initially the whole amount payable( $500,000) was to be paid in one month and 15 days counting from December 31, 2020, hence, since the amount is payable within a  year, it should have been classified as the current liability.

However, the refinancing meant that  $250,000 would be deferred to 2022 while the balance of $250,000 ($500,000-$250,000) is still payable on the agreed date (February 15, 2021).

As a result, $250,000  would be reported as a current liability while the balance  of $250,000 is shown as non-current(long-term) liability.