A debtor firm’s 12/31/21 statement of financial position is to be issued of 4/15/22. A long-term obligation contracted in 2019 for settlement on 1/15/22 was extinguished through cash payment on its due date. On 1/20/22, a 5-year note was issued to replace the cash used up for the payment made on 1/15/22. Which of the following statements is correct? Group of answer choices The original obligation should be reported in the 2021 statement of financial position as a current liability because the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. The new obligation entered into on 1/20/22 should be reported in the 2022 statement of financial position as a non-current liability because it is due to be settled beyond twelve months after the reporting period. The original obligation should be reported in the 2022 statement of financial position as a non-current liability because the entity does have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. There should be no liability to be reported in the 2022 statement of financial position since the original obligation was already extinguished before the date of the authorization for issuance.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A debtor firm’s 12/31/21 statement of financial position is to be issued of 4/15/22. A long-term obligation contracted in 2019 for settlement on 1/15/22 was extinguished through cash payment on its due date. On 1/20/22, a 5-year note was issued to replace the cash used up for the payment made on 1/15/22. Which of the following statements is correct?

Group of answer choices

The original obligation should be reported in the 2021 statement of financial position as a current liability because the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period.

The new obligation entered into on 1/20/22 should be reported in the 2022 statement of financial position as a non-current liability because it is due to be settled beyond twelve months after the reporting period.

The original obligation should be reported in the 2022 statement of financial position as a non-current liability because the entity does have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period.

There should be no liability to be reported in the 2022 statement of financial position since the original obligation was already extinguished before the date of the authorization for issuance.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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