On December 31, 2011, Hornsby Corporation had $1.2 million

On December 31, 2011, Hornsby Corporation had $1.2 million of short term debt in the form of notes payable due on February 2, 2012. On January 21, 2012, the company issued 25,000 common shares for $38 per share, receiving $950,000 in proceeds after brokerage fees and other costs of issuance. On February 2, 2012, the proceeds from the sale of the shares, along with an additional $250,000 cash, are used to liquidate the $1.2-million debt. The December 31, 2011 balance sheet is issued on February 23, 2012.

Instructions

(a) Assuming that Hornsby follows private enterprise GAAP, show how the $1.2 million of short-term debt should be presented on the December 31, 2011 balance sheet, including the note disclosure.

(b) Assuming that Hornsby follows IFRS, explain how the $1.2 million of short-term debt should be presented on the December 31, 2011 balance sheet.

(a)

Hornsby Corporation
Partial Balance Sheet
December 31, 2011
Current liabilities:
Notes payable (Note 1)		$250,000
Long-term debt:
Notes payable refinanced in           February 2012 (Note 1)		950,000
Note 1: Short-term debt refinanced
As of December 31, 2011, the company had notes payable totalling $1,200,000 due on February 2, 2012. These notes were refinanced on their due date to the extent of $950,000 received from the issuance of common shares on January 21, 2012. The balance of $250,000 was liquidated using current assets.
OR
Current liabilities:
Notes payable (Note 1)		$250,000
Long-term debt:
Short-term debt expected to be           refinanced (Note 1)		950,000

 (b) Under IFRS, since the debt is due within 12 months from the reporting date, it is classified as a current liability. This classification holds even if a long-term refinancing has been completed before the financial statements are released. The only exception accepted for continuing long-term classification is if, at the balance sheet date, the entity expects to refinance it or roll it over under an existing agreement for at least 12 months and the decision is solely at its discretion. The international standard has a stringent requirement that the agreement must be firm at the balance sheet date.