I don't know if the answer is $0 or $1,000,000. One part says it's 1,000,000 because it's less than a year, but they also have the intention of using part of it for a long term bond, so I think it could be 0. Below is the question. Other answers to select is 100,000 and 900,000, but I'm stuck between 0 or 1,000,000
Question: At Dec 31, 2005, XYZ Corp owed notes payable of 1,000,000 with a maturity date of april 30, 2006. these notes did not arise from transactions in the normal course of business. On Feb 1, 2006, XYZ issued 3,000,000 of 10-year bonds with the intention of using part of the bond proceeds to liquidate the 1,000,000 of notes payable. XYZ's Dec 31, 2005, financial statements were issued on March 29. How much of the 1,000,000 notes payable should be classified as current in XYZ's balance sheet at December 31, 2005?
To determine how much of the $1,000,000 notes payable should be classified as current in XYZ's balance sheet at December 31, 2005, we need to consider the maturity date of the notes payable and the intention of using the bond proceeds to liquidate them.
Based on the given information, the maturity date of the notes payable is April 30, 2006. This means that at December 31, 2005, there are less than 12 months remaining until the notes become due. Typically, liabilities with maturity dates less than a year are classified as current liabilities.
However, we also know that on February 1, 2006, XYZ issued $3,000,000 of 10-year bonds with the intention of using part of the bond proceeds to liquidate the $1,000,000 of notes payable. Since the bond issuance took place after December 31, 2005, it would not have been reflected in XYZ's financial statements issued on March 29, 2006.
In this case, to determine the classification of the notes payable at December 31, 2005, we need to consider management's intention. Management's intention to use part of the bond proceeds to liquidate the notes payable suggests that they do not plan to settle the full $1,000,000 liability within the next year. Consequently, it would not be classified as a current liability on the balance sheet.
Therefore, the correct answer is $0. None of the $1,000,000 notes payable should be classified as current in XYZ's balance sheet at December 31, 2005.