Clare Company is constructing a new warehouse facility. On May 15, 2016, the company issued $2,500,000 short-term notes payable due March 15,2 017, to finance construction of the warehouse. On December 31, 2016, Clare intends to refinance the short-term notes pay able by issuing long term debt. However, because Clare has excess cash on January 12, 2017, it retires $800,000 of the short-term notes payable.
On January' 20, 2017, Clare completes a $5,000,000 long-term debt offering. Clare uses the proceeds from the long term debt to:
• Retire the remaining $1,700,000 of short-term notes payable on March 15, 2017
• Pay $3,300,000 of warehouse construction costs during 2017
As the financial statements for 2016 arc being prepared, Steve Share, president of Clare Company, wants to make sure that all $2,500,000 of short term notes payable arc reclassified as long-term because the company borrowed enough to repay the total amount. As the accountant for Clare Company, you know that you can classify' short-term debt that is going to be refinanced as a long-term liability' but arc not certain how much.
Directions
Research the related generally' accepted accounting principles and prepare a short memo to the president of Clare Company that describes how the short-term notes pay able should be classified in the 2016 balance sheet. Cite your references and applicable paragraph numbers.