Answer:
1 | Current liability | $2,384,000 |
2 | Long-term liability | $6,000,000 |
3 | Current liability | $2,300,000 |
Long term liability | $6,000,000 | |
4 | Current liability | $2,300,000 |
Long-term liability | $6,000,000 |
Calculation and Explanation;
1. Current liability = $2,384,000
Portion of the notes payable not refinanced on a long-term basis through the stock sale | $ | 2,300,000 |
Liability for the payment of employee's medical bills | 84,000 | |
Total | $ | 2,384,000 |
Short-term debt which are payable within a year is a current liability. But, when a short term debt is refinanced on a long-term basis,it becomes a long-term liability. Here Rushing refinanced $6.0 million of the notes payable on a long-term basis. So they will report that amount as long-term liability. The rest $2.3 million will be current liability at December 31. An amount of $84,000 is paid to employee for his/her medical bills. It is a loss contingency as of December 31. Appropriate disclosure can be given based on information occurring after the end of the year and before the financial statements are issued.
2. Long-term liability = $6,000,000
Portion of the notes payable refinanced on long-term basis (sale
of stocks) = $6,000,000
A short term debt which is refinanced on a long-term basis will
become long-term liabilities. Rushing refinanced $6.0 million of
the notes payable on a long-term basis. So, they will need to
report $6.0M as long-term liabilities.
3. Current liability = $2,300,000
Long-term liability = $6,000,000
Suppose, settlement agreement has happend on March 15, 2022,
then $84,000 which is the payment of the employee’s medical bills
will not have been accrued as current or long-term liability. The
reason is that the payment had not been recognised as probable one
as of the issuance of financial statements.
4. Current liability = $2,300,000
Long-term liability = $6,000,000
Suppose, the work-site injury was occurred on January 3, 2022, then $84,000 which is the payment of the employee’s medical bills will not have been accrued as current or long-term liability.The reason is that the liability had not occurred as of December 31, 2021. Hence, as of that date the liability didnt exist.
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