Detailed Answer
(c) The $4,000,000 note payable is due March 15, year
3 and normally would be classified as a current liability in the
December 31, year 2 financial statements. However, a short-term
obligation can be reclassified as long-term if the enterprise intends
to refinance the obligation on a long-term basis and the
intent is supported by the ability to refinance. Cali demonstrated
its ability to refinance by actually issuing bonds and refinancing
the note prior to the issuance of the December 31, year 2 financial
statements. Since the proceeds from the bonds exceeded the
amount needed to retire the note, the entire $4,000,000 notes
payable would be classified as a noncurrent liability, with separate
disclosure of the note refinancing.