(Refinancing of Short-Term Debt)
On December 31, 2017, Hornsby Corporation had $1.2 million ofshort-term debt in the form of notes payable due on February 2,2018. On January 21, 2018, in order to ensure that it hadsufficient 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 ofissuance. On February 2, 2018, the proceeds from the sale of theshares, along with an additional $250,000 cash, were used toliquidate the $1.2-million debt. The December 31, 2017 balancesheet is issued on February 23, 2018.
Instructions
(a) Assuming that Hornsby follows ASPE, show how the $1.2 million ofshort-term debt should be presented on the December 31, 2017balance sheet, including the note disclosure.
(b) Assuming that Hornsby follows IFRS, explain how the $1.2 millionof short-term debt should be presented on the December 31, 2017statement of financial position.
(c) Considering only the effect of the $1.2-million short-term notespayable, would Hornsby's current ratio appear higher if Hornsbyfollowed ASPE, or if Hornsby followed IFRS? Discuss your answerfrom the perspective of a creditor.
(Refinancing of Short-Term Debt)
On December 31, 2017, Hornsby Corporation had $1.2 million ofshort-term debt in the form of notes payable due on February 2,2018. On January 21, 2018, in order to ensure that it hadsufficient 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 ofissuance. On February 2, 2018, the proceeds from the sale of theshares, along with an additional $250,000 cash, were used toliquidate the $1.2-million debt. The December 31, 2017 balancesheet is issued on February 23, 2018.
| Instructions (a)Assuming that Hornsby follows ASPE, show how the $1.2 million ofshort-term debt should be presented on the December 31, 2017balance sheet, including the note disclosure. (b)Assuming that Hornsby follows IFRS, explain how the $1.2 millionof short-term debt should be presented on the December 31, 2017statement of financial position. (c)Considering only the effect of the $1.2-million short-term notespayable, would Hornsby's current ratio appear higher if Hornsbyfollowed ASPE, or if Hornsby followed IFRS? Discuss your answerfrom the perspective of a creditor. |
