Required: Determine how the $5,000,000 of commercial paper should be classified by citing the specific nine-digit Codification citation (XXX-XX- XX-XX) in the FASB Codification. Before doing so, formulate your own opinion on the proper treatment.
Required: Determine how the $5,000,000 of commercial paper should be classified by citing the specific nine-digit Codification citation (XXX-XX- XX-XX) in the FASB Codification. Before doing so, formulate your own opinion on the proper treatment.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Research Case 13-1 (Static) Bank loan; accrued interest [LO13-1, 13-2]
A fellow accountant has solicited your opinion regarding the classification of short-term obligations repaid prior to being replaced by a
long-term security. Cheshire Foods, Inc., issued $5,000,000 of short-term commercial paper during 2020 to finance construction of a
plant. At September 30, 2021, Cheshire's fiscal year-end, the company intends to refinance the commercial paper by issuing long-term
bonds. However, because Cheshire temporarily has excess cash, in November 2021 it liquidates $2,000,000 of the commercial paper
as the paper matures. In December 2021, the company completes a $10,000,000 long-term bond issue. Later during December, it
issues its September 30, 2021, financial statements. The proceeds of the long-term bond issue are to be used to replenish $2,000,000
In working capital, to pay $3,000,000 of commercial paper as it matures in January 2022, and to pay $5,000,000 of construction costs
expected to be incurred later that year to complete the plant.
You initially are hesitant because you don't recall encountering a situation in which short-term obligations were repaid prior to being
replaced by a long-term security. However, you are encouraged by a vague memory that this general topic is covered by GAAP
literature you came across when reading an Internet article.
Required:
Determine how the $5,000,000 of commercial paper should be classified by citing the specific nine-digit Codification citation (XXX-XX-
XX-XX) in the FASB Codification. Before doing so, formulate your own opinion on the proper treatment.
Topic
Subtopic
Section
Paragraph](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F66d7e477-e4b0-4ebc-aba3-7293f85bf9e3%2F78b3cdf2-17bf-40b1-948c-64ce9ae5b8af%2Fzheb94r_processed.png&w=3840&q=75)
Transcribed Image Text:Research Case 13-1 (Static) Bank loan; accrued interest [LO13-1, 13-2]
A fellow accountant has solicited your opinion regarding the classification of short-term obligations repaid prior to being replaced by a
long-term security. Cheshire Foods, Inc., issued $5,000,000 of short-term commercial paper during 2020 to finance construction of a
plant. At September 30, 2021, Cheshire's fiscal year-end, the company intends to refinance the commercial paper by issuing long-term
bonds. However, because Cheshire temporarily has excess cash, in November 2021 it liquidates $2,000,000 of the commercial paper
as the paper matures. In December 2021, the company completes a $10,000,000 long-term bond issue. Later during December, it
issues its September 30, 2021, financial statements. The proceeds of the long-term bond issue are to be used to replenish $2,000,000
In working capital, to pay $3,000,000 of commercial paper as it matures in January 2022, and to pay $5,000,000 of construction costs
expected to be incurred later that year to complete the plant.
You initially are hesitant because you don't recall encountering a situation in which short-term obligations were repaid prior to being
replaced by a long-term security. However, you are encouraged by a vague memory that this general topic is covered by GAAP
literature you came across when reading an Internet article.
Required:
Determine how the $5,000,000 of commercial paper should be classified by citing the specific nine-digit Codification citation (XXX-XX-
XX-XX) in the FASB Codification. Before doing so, formulate your own opinion on the proper treatment.
Topic
Subtopic
Section
Paragraph
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