Question

On December 31, 2017, Alexander Company had \(1,200,000 of short-term debt in the form of notes payable due February 2, 2018. On January 21, 2018, the company issued 25,000 ordinary shares for \)36 per share, receiving \(900,000 proceeds after brokerage fees and other costs of issuance. On February 2, 2018, the proceeds from the share sale, supplemented by an additional \)300,000 cash, are used to liquidate the \(1,200,000 debt. The December 31, 2017, statement of financial position is authorized for issue on February 23, 2018.

Instructions

Show how the \)1,200,000 of short-term debt should be presented on the December 31, 2017, statement of financial position.

Short answer

Alexander Company Balance Sheet (Extract)
Particular	Amount $
Current liabilities
Note payable	$300,000
Long-Term liabilities
Note payable	$900,000
Total	$1,200,000

Step-by-step solution

Definition of Statement of Financial Position

A statement of financial position can be defined as a statement that summarizes all the obligations and resources of the business entity. Both sides of such a statement are equal, and its basic equation is that total business assets are equal to the sum of total liabilities and equity.

Presenting short-term debt on the statement of financial position

$300,000 is recorded as a current liability because it is liquidated using the current assets of the business entity. At the same time, notes payable of $900,000 is reported as a long-term liability because these notes are refinanced by issuing equity shares.