Question

According to GAAP, what is the maximum amount that can be excluded from current liabilities through refinancing?

1) The amount that is actually refinanced
2) The amount that is double the amount refinanced
3) The amount that is half the amount refinanced
4) The amount that is triple the amount refinanced

Answer 1

Under GAAP, only the amount actually refinanced can be excluded from current liabilities and reclassified as long-term debt.

Step-by-step explanation:

According to Generally Accepted Accounting Principles (GAAP), the maximum amount that can be excluded from current liabilities through refinancing is the amount that is actually refinanced. In other words, if a company has a current liability that it is able to refinance, the company can reclassify that liability as a long-term debt or non-current liability up to the amount of the new financing obtained as long as it meets certain criteria before the balance sheet date, such as an actual financing agreement.