P13-14 Short-Term Debt Expected to Be Refinanced Several times during 2010, Palmer Company issued short-term com- mercial paper totaling $7 million. On December 31, 2010, the company's year-end, Palmer intends to refinance the commer- cial paper by issuing long-term debt. However, because of the temporary existence of excess cash, $3 million of the liability is liquidated in February 2011, as the commercial paper matures. On March 1, 2011, Palmer issues $9 million of long-term bonds, with $3 million of the proceeds going to replenish the working capital used to liquidate the $3 million of commer- cial paper, $4 million to pay the remaining balance of the commercial paper due after April, and the remaining $2 mil- lion to finance an equipment modernization program at Palmer's plant. Palmer's December 31, 2010 year-end financial statements are issued on March 13, 2011. Required 1. How will the $3 million of commercial paper liquidated prior to the refinancing be classified on Palmer's December 31, 2010 balance sheet? Explain your reasoning. 2. How will the remaining $4 million of commercial paper be classified on Palmer's December 31, 2010 balance sheet? Explain your reasoning.

P13-14 Short-Term Debt Expected to Be Refinanced Several times during 2010, Palmer Company issued short-term com- mercial paper totaling $7 million. On December 31, 2010, the company's year-end, Palmer intends to refinance the commer- cial paper by issuing long-term debt. However, because of the temporary existence of excess cash, $3 million of the liability is liquidated in February 2011, as the commercial paper matures. On March 1, 2011, Palmer issues $9 million of long-term bonds, with $3 million of the proceeds going to replenish the working capital used to liquidate the $3 million of commer- cial paper, $4 million to pay the remaining balance of the commercial paper due after April, and the remaining $2 mil- lion to finance an equipment modernization program at Palmer's plant. Palmer's December 31, 2010 year-end financial statements are issued on March 13, 2011. Required 1. How will the $3 million of commercial paper liquidated prior to the refinancing be classified on Palmer's December 31, 2010 balance sheet? Explain your reasoning. 2. How will the remaining $4 million of commercial paper be classified on Palmer's December 31, 2010 balance sheet? Explain your reasoning.

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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