A. In order to finance the company's construction project which has reached its 95 percent stage...

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A. In order to finance the company's construction project which has reached its 95 percent stage of completion, MNM Bhd signed an RM500,000, 6 percent, six-month note on 31 October 2021. MNM Bhd expects to extend the maturity date of the loan to 31 August 2023. Management of MNM Bhd has informed the board of its intention to refinance the debt so that it will not mature during 2022. The CEO of MNM Bhd, Mr. David believes the company has great supports from lenders to keep refinancing the short-term debt, thus it could be classified as long-term debt. The authorization date of issuance of the financial statements for the year ended 31 December 2021, is 15 April 2022. The necessary paperwork to refinance the loan is signed and completed on 10 February 2022. MNM Bhd did not have an unconditional right to defer the settlement of the obligation on 31 December 2021. REQUIRED: (a) Prepare the journal entry necessary to record the transaction on 31 October 2021. (2 Marks) (b) Explain the accounting treatment for the short-term debt to be refinanced if a contract to refinance: (i) is signed and completed on 10 February 2022 (ii) is signed and completed by 31 December 2021 (5 Marks) (c) Do you agree with the idea of Mr. David to classify the short-term debt as a long- term debt due to management intention and his belief that they the company has great supports from the lenders? Justify your answer. (2 Marks) (d) Briefly explain TWO (2) reasons why presentation of current and non-current liabilities should appropriately be classified by MNM Bhd. (4 Marks) (e) Assume that MNM Bhd entered into a financing agreement with CISB Bank on 20 February 2022 that permits MNM Bhd to borrow from the bank at any time through 2022 up to RM1,000,000 at a special rate. The agreement is not cancellable except for violation of a provision. No violation of any provision exists at the date of issuance of the financial statements. Management may refinance the RM500,000 note payable by getting the loan from the bank to honour the debt. Given these facts, briefly explain, should RM500,000 note payable be classified as non-current on the statement of financial position as at 31 December 2021. (2 Marks) A. In order to finance the company's construction project which has reached its 95 percent stage of completion, MNM Bhd signed an RM500,000, 6 percent, six-month note on 31 October 2021. MNM Bhd expects to extend the maturity date of the loan to 31 August 2023. Management of MNM Bhd has informed the board of its intention to refinance the debt so that it will not mature during 2022. The CEO of MNM Bhd, Mr. David believes the company has great supports from lenders to keep refinancing the short-term debt, thus it could be classified as long-term debt. The authorization date of issuance of the financial statements for the year ended 31 December 2021, is 15 April 2022. The necessary paperwork to refinance the loan is signed and completed on 10 February 2022. MNM Bhd did not have an unconditional right to defer the settlement of the obligation on 31 December 2021. REQUIRED: (a) Prepare the journal entry necessary to record the transaction on 31 October 2021. (2 Marks) (b) Explain the accounting treatment for the short-term debt to be refinanced if a contract to refinance: (i) is signed and completed on 10 February 2022 (ii) is signed and completed by 31 December 2021 (5 Marks) (c) Do you agree with the idea of Mr. David to classify the short-term debt as a long- term debt due to management intention and his belief that they the company has great supports from the lenders? Justify your answer. (2 Marks) (d) Briefly explain TWO (2) reasons why presentation of current and non-current liabilities should appropriately be classified by MNM Bhd. (4 Marks) (e) Assume that MNM Bhd entered into a financing agreement with CISB Bank on 20 February 2022 that permits MNM Bhd to borrow from the bank at any time through 2022 up to RM1,000,000 at a special rate. The agreement is not cancellable except for violation of a provision. No violation of any provision exists at the date of issuance of the financial statements. Management may refinance the RM500,000 note payable by getting the loan from the bank to honour the debt. Given these facts, briefly explain, should RM500,000 note payable be classified as non-current on the statement of financial position as at 31 December 2021. (2 Marks)

Answer rating: 100% (QA)

a Journal Entry on 31 October 2021 Debit Cash 500000 Credit Notes Payable 500000 b i If the contract to refinance the shortterm debt is signed and com... View the full answer