007 Refinancing S-T Obligations

Question 1

List the three ways to meet the “ability to refinance” requirement.

Answer 1

1 Actually refinance before issuance of the financial statements; 2 Enter into a noncancelable refinancing agreement supported by a viable lender; 3 Issue equity securities replacing the debt.

Question 2

List the criteria for reclassifying current liabilities to long term.

Answer 2

1 The intent to refinance the short-term obligation must be proven; and 2 The firm must demonstrate the ability to refinance the obligation.

Question 3

How does an entity show intent to refinance short-term obligations?

Answer 3

Must be proven, possibly in the form of board of directors’ meeting minutes.