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Clare Company is constructing a new warehouse facility. On May 16, 2016, the company issued $2,500,000 of short-term notes payable due March 15, 2017, to finance the construction of the facility. On December 31, 2016, Clare intends to refinance the short-term notes payable by issuing long-term debt. However, because Clare has excess cash on January 12, 2017, it retires $800,000 of the short-term notes payable.
On January 20, 2017, Clare completes a $5,000,000 long-term debt offering. Clare uses the proceeds from the long-term debt offering to:
1. retire the remaining $1,700,000 of short-term notes payable on March 15, 2017
2. pay $3,300,000 of warehouse construction costs during 2017
The financial annual report is being prepared for 2016 and is expected to be issued by the end of March. Steve Share, president of Clare Company, wants to make sure that all $2,500,000 of short-term notes payable are reclassified as long-term because the company borrowed enough to repay the total amount. As the accountant for Clare Company, you know that you can classify short-term debt that is going to be refinanced as a long-term liability but are not certain how much.
Directions
Research the related GAAP (FASB Codification) and prepare a memo (in good form) to the president of the Clare Company that describes how the short-term notes payable should be classified on the 2016 balance sheet. Cite your references and applicable paragraph numbers.
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