Question

Presented below are two different situations related to Mckee Corporation’s debt obligation. Mckee’s next financial reporting date is December 31, 2017. The financial statements are authorized for issuance on March 1, 2018.

1. Mckee has a long-term obligation of \(400,000, which is maturing over 4 years in the amount of \)100,000 per year. The obligation is dated November 1, 2017, and the first maturity date is November 1, 2018.
2. Mckee has a short-term obligation due February 15, 2018. Its lender agrees to extend the credit to the maturity date of this loan to February 15, 2018. The agreement for extension is signed on January 15, 2018.

Instructions

Indicate how each of these debt obligations is reported on McKee’s statement of financial position on December 31, 2017.

Short answer

The long-term obligation of $300,000 shows as a Non-current liability, and the current portion of the long-term of $100,000 maturing shows as a current liability, but the short-term credit extended shows as a non-current liability.

Step-by-step solution

Meaning of the Balance Sheet

The balance sheet is a statement prepared at the end of the accounting period that shows the assets, liabilities as well as equity of the business.

Balance sheet ( extract )

Statement of Financial Position For the Year Ended December 31, 2017
Liabilities	$
Current Liabilities:
Current Portion of Long-Term Debt	$100,000
Non-Current Liabilities:
Long term Debts	$300,000
Short Term Debts	-
Total Liabilities($100,000 + $300,000)	$400,000