Believe, Inc. has a calendar year end. On January 25, 2017 while preparing the 2016 financial statements, Believe, Inc. refinanced a $2 million, 30-year term note payable, which was due on March 31st, 2017. The new note has a 20-year term. In the December 31st, 2016 balance sheet, how should the $2 million debt be classified?

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Business

Sidney Huang

27 April, 22:42

Believe, Inc. has a calendar year end. On January 25, 2017 while preparing the 2016 financial statements, Believe, Inc. refinanced a $2 million, 30-year term note payable, which was due on March 31st, 2017. The new note has a 20-year term. In the December 31st, 2016 balance sheet, how should the $2 million debt be classified?

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Kelvin Blackwell · Answer 1

The answer is: Long-term Liability

Explanation:

Long term liabilities are financial obligations due within one year or more of the balance sheet's date (e. g. long term loans, deferred income taxes, etc.). Since Believe Inc. was able to refinance its $2 million debt, and instead of having to pay it by March 31st, 2017 (was a short term liability) it will now pay it in March 31st, 2037, it converted its short term liability into a long term liability.