Question

Van Rushing Hunting Goods' fiscal year ends on December 31. At the end of the 2021 fiscal year, the company had notes payable of $10.5 million due on February 8, 2022. Rushing sold 3.0 million shares of its $0.25 par, common stock on February 3, 2022, for $8.1 million. The proceeds from that sale along with $2.4 million from the maturation of some 3-month CDs were used to pay the notes payable on February 8. Through his attorney, one of Rushing's construction workers notified management on January 5, 2022, that he planned to sue the company for $1 million related to a work-site injury on December 20, 2021. As of December 31, 2021, management had been unaware of the injury, but reached an agreement on February 23, 2022, to settle the matter by paying the employee's medical bills of $74,500. Rushing's financial statements were finalized on March 3, 2022. Required: 1. What amount(s) if any, related to the situations described should Rushing report among current liabilities in its balance sheet at December 31, 2021? 2. What amount(s) if any, related to the situations described should Rushing report among long-term liabilities in its balance sheet at December 31, 2021? 3. What amount(s) if any, related to the situations described should Rushing report among current liabilities and long-term liabilities in its balance sheet at December 31, 2021 if the settlement agreement had occurred on March 15, 2022, instead? 4. What amount(s) if any, related to the situations described should Rushing report among current liabilities and long-term liabilities in its balance sheet at December 31, 2021 if the work-site injury had occurred on January 3, 2022, instead? (For all requirements, enter your answers in whole dollars.) 1 Current liability 2 Long-term liability 3 Current liability Long term liability 4 Current liability Long-term liability

Answer 1

1)
The amount of current liabilities to be reported in the balancesheet at December 31, 2021 is calculated as follows:
Portion of the notes payable not refinanced on a long-term basis through the stock sale	$ 2,400,000.00
Liability for the payment of employee's medical bills	$      74,500.00
Current Liability	$ 2,474,500.00
2)
Portion of the notes payable refinanced on a long-term basis through the stock sale	$ 8,100,000.00
Long term Liability	$ 8,100,000.00
3)
Portion of the notes payable not refinanced on a long-term basis through the stock sale	$ 2,400,000.00
Current Liability	$ 2,400,000.00
If the settlement agreement had occurred on March 15, 2022, instead, the $74,500 payment of the employee's medical bills would not have been accrued as either a current or long-term liability because that payment had not been determined to be probable as of the publication of the financial statement.
Portion of the notes payable refinanced on a long-term basis through the stock sale	$ 8,100,000.00
Long term Liability	$ 8,100,000.00
4)
Portion of the notes payable not refinanced on a long-term basis through the stock sale	$ 2,400,000.00
Current Liability	$ 2,400,000.00
If the work-site injury had occurred on January 3, 2022, instead, the $74,500  payment of the employee's medical bills would not have been accrued as either a current or long-term liability because the cause of the liability had not occurred as of Dec. 31, 2021. Thus, the liability did not exist as of that date.
Portion of the notes payable refinanced on a long-term basis through the stock sale	$ 8,100,000.00
Long term Liability	$ 8,100,000.00