Asked by Jesse Gonzalez on May 10, 2024
Verified
Under what conditions can a short-term obligation be classified as a long-term liability?
Short-Term Obligation
A debt or other financial obligation that is due to be paid within one year or within the entity's operating cycle if longer.
Long-Term Liability
Obligations or debts due in more than one year, reflecting a company's financing activities and including loans, bonds payable, and lease obligations.
- Understand the conditions under which short-term obligations can be classified as long-term liabilities.
Verified Answer
ML
Malissa LizetMay 12, 2024
Final Answer :
If the company both intends and has the ability to refinance the short-term debt on a long-term basis, the debt is classified as long-term.Refinancing can occur by replacing the short-term debt with long-term debt or with ownership securities, or by replacing the short-term debt with other short-term debt that extends beyond one year or the operating cycle, whichever is longer.
Learning Objectives
- Understand the conditions under which short-term obligations can be classified as long-term liabilities.