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Current—noncurrent classification of debt| | ? LO1 LO4| The balance sheet at December 31, 2011, for Nevada Harvester Corporation includes the liabilities listed below: Required: 1. | | Determine the amount that can be excluded from classification as a current liability (that is, reported as a noncurrent liability) for each. Explain the reasoning behind your classifications. | | | | Solution: 1. a. A Zero dollars will be excluded from current liability because it is callable within year.

Even if the debt is not expected to be called, there is a possibility that creditor has the right to demand. 1. b. Notes payable 5 million will be excluded from current liability and 1 million will be classified as current liability because company has ability to refinance 5 million of the notes is demonstrated by a refinancing agreement. The remaining 1 million must be reported as a current liability. 1. c. Zero dollars will be excluded from current liability since the bond is non callable and the bond matures within the upcoming year.

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Therefore, 20 million should be classified as current liabilities. 1. d. 12 million will be excluded from current liability. Even if working capital has fallen below a contractual minimum, the company has ability to correct the existing violation within six months. 2. | | Prepare the liability section of a classified balance sheet and any necessary footnote disclosure for Nevada Harvester at December 31, 2011. Accounts payable and accruals are $22 million. | Solution:

Nevada Harvester Corporation Balance sheet Dec 31, 2011 Current Liabilities: Accounts payable and accruals 22 Million Current portion of long-term debt 40 Million Bonds payable 20 Million Notes payable 1 Million

Total current liabilities 83 Million Noncurrent liabilities: Notes payable 5 Million Bank loan 12 Million Total noncurrent liabilities 17 Million Foot notes: Lines of credit: The Company refinances a loan into a 5 million any time during 2012.

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