On December 31, 2023, Hornsby Corporation had $1.2 million of short-term debt in the form of notes
Question:
On December 31, 2023, Hornsby Corporation had $1.2 million of short-term debt in the form of notes payable due on February 2, 2024. On January 21, 2024, to ensure that it had sufficient funds to pay for the short-term debt when it matured, Hornsby issued 25,000 common shares for $38 per share, receiving $950,000 in proceeds after brokerage fees and other costs of issuance. On February 2, 2024, the proceeds from the sale of the shares, along with an additional $250,000 cash, were used to liquidate the $1.2-million debt. The December 31, 2023 balance sheet is issued on February 23, 2024.
Instructions
a. Assuming that Hornsby follows ASPE, show how the $1.2 million of short-term debt should be presented on the December 31, 2023 balance sheet, including the note disclosure.
b. Assuming that Hornsby follows IFRS, explain how the $1.2 million of short-term debt should be presented on the December 31, 2023 SFP.
c. Considering only the effect of the $1.2 million of short-term notes payable, would Hornsby’s current ratio appear higher if Hornsby followed ASPE or if Hornsby followed IFRS? Discuss your answer from a creditor’s perspective.
Step by Step Answer:
Intermediate Accounting Volume 2
ISBN: 9781119740445
13th Canadian Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy