# ASC 470-10-55: Debt — Overall — 55 Implementation Guidance and Illustrations

Source: FASB Accounting Standards Codification, Basic View

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## ASC 470-10-55: 55 Implementation Guidance and Illustrations

[Read section](https://asc.understandingaccounting.org/asc/470/10/#55-implementation-guidance-and-illustrations)

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#### Implementation Guidance

##### [470-10-55-1](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-1)

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Under paragraph [470-10-45-2](https://asc.understandingaccounting.org/asc/470/10/#470-10-45-2), the lender has already loaned money on a long-term basis. To continue long-term classification requires a judgment about the likelihood of acceleration of the due date. Paragraphs

[470-10-45-13 through 45-20](https://asc.understandingaccounting.org/asc/470/10/#470-10-45-13)

cover circumstances in which the obligation is by its terms short-term. For such an obligation to be excluded from current liabilities, the lender must advance new funds or refinance the short-term obligation on a long-term basis based on conditions existing on the date of the new loan or refinancing. Therefore, to classify an obligation as long-term, paragraphs

[470-10-45-13 through 45-20](https://asc.understandingaccounting.org/asc/470/10/#470-10-45-13)

require a higher standard for a financing agreement that permits an entity to refinance a short-term obligation on a long-term basis than paragraph [470-10-50-2](https://asc.understandingaccounting.org/asc/470/10/#470-10-50-2) requires for an existing long-term loan for which early repayment might be requested.

#### Illustrations

##### [470-10-55-2](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-2)

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This Example illustrates the guidance in paragraph [470-10-45-1](https://asc.understandingaccounting.org/asc/470/10/#470-10-45-1) for the classification of long-term debt when a debt covenant violation is waived by a lender for a period greater than a year.

##### [470-10-55-3](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-3)

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A borrower has a long-term loan that requires compliance with certain covenants, such as maintenance of a minimum current ratio, minimum debt-to-equity ratio, or minimum level of shareholders' equity. The borrower must meet the covenants on a quarterly or semiannual basis. At one of the compliance dates, the borrower violates a covenant. That violation gives the lender the right to call the debt. The lender waives that right for a period greater than one year but retains the future covenant requirements.

##### [470-10-55-4](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-4)

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The issue is whether the waiver of the lender's rights resulting from the violation of the covenant with the retention of the periodic covenant tests represents, in substance, a grace period. If viewed as a grace period, the borrower would classify the debt as current (see paragraph [470-10-45-11](https://asc.understandingaccounting.org/asc/470/10/#470-10-45-11)) unless it is probable that the borrower can cure the violation (comply with the covenant) within the grace period. Specifically, the balance sheet classification of an obligation is considered in the following situations:

1.  a
    
    The debt covenants are applicable only after the balance sheet date, and it is probable that the borrower will fail to meet the covenant requirement at the compliance date three months after the balance sheet date.
    
2.  b
    
    The borrower meets the current covenant requirement at the balance sheet date, and it is probable that the borrower will fail to meet the same covenant requirement at the compliance date in three months.
    
3.  c
    
    The borrower meets the current covenant requirement, and it is probable that the borrower will fail to meet a more restrictive covenant requirement applicable at the compliance date in three months.
    
4.  d
    
    The borrower has met the covenant requirement in the prior quarter but before the balance sheet date negotiates a modification of the loan agreement that eliminates the covenant requirement at the balance sheet date or modifies the requirement so that the borrower will comply. Absent the modification, the borrower would have been in violation of the covenant at the balance sheet date. The same or a more restrictive covenant must be met at the compliance date in three months, and it is probable that the borrower will fail to meet that requirement at that subsequent date.
    
5.  e
    
    The borrower is in violation of the current covenant requirement at the balance sheet date and, after the balance sheet date but before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25), obtains a waiver. The same or a more restrictive covenant must be met at the compliance date in three months, and it is probable that the borrower will fail to meet that requirement at that subsequent date.

##### [470-10-55-5](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-5)

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In the situations described in (a) through (c) of the preceding paragraph, the debt would be classified as noncurrent, in which case the borrower would be required to disclose the adverse consequences of its probable failure to satisfy future covenants.

##### [470-10-55-6](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-6)

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In the situations described in paragraph [470-10-55-4(d) through (e)](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-4), the debt would be classified as current. However, if the debt is expected to be refinanced on a long-term basis and the borrower meets the provisions of paragraphs

[470-10-45-13 through 45-20](https://asc.understandingaccounting.org/asc/470/10/#470-10-45-13)

, the debt would be classified as noncurrent.

##### [470-10-55-7](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-7)

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This Example illustrates the guidance for the appropriate classification by the issuer of debt if all of the following conditions exist:

1.  a
    
    The debt has a long-term maturity (for example, 30 to 40 years).
    
2.  b
    
    The debt holder may redeem or put the bond on short notice (7 to 30 days).
    
3.  c
    
    The issuer has a remarketing agreement that states that the agent will make its best effort to remarket the bond when redeemed.
    
4.  d
    
    The debt is secured by a short-term letter of credit that provides protection to the debt holder in the event that the redeemed debt cannot be remarketed. (Amounts drawn against the letter of credit are payable back to the issuer of the letter of credit by the issuer of the redeemable debt instrument on the same day that the drawdown occurs.)

##### [470-10-55-8](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-8)

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Debt agreements that allow a debt holder to redeem (or put) a debt instrument on demand (or within one year) should be classified as short-term liabilities despite the existence of a best-efforts remarketing agreement. That is, unless the issuer of the redeemable debt instrument has the ability and intent to refinance the debt on a long-term basis as provided for in paragraph [470-10-45-14](https://asc.understandingaccounting.org/asc/470/10/#470-10-45-14), the debt should be classified as a current liability.

##### [470-10-55-9](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-9)

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In this Example, the obligation would be classified by the issuer as noncurrent only if the letter-of-credit arrangement meets the requirements of paragraph [470-10-45-14(b)](https://asc.understandingaccounting.org/asc/470/10/#470-10-45-14).

##### [470-10-55-10](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-10)

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This Example provides an illustration of the guidance in paragraph [470-10-50-1](https://asc.understandingaccounting.org/asc/470/10/#470-10-50-1) for disclosures for long-term borrowings and preferred stock with mandatory redemption requirements. This Example has the following assumptions.

##### [470-10-55-11](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-11)

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Entity D has outstanding two long-term loans, one convertible debt, and one issue of preferred stock with mandatory redemption requirements. The first loan is a $100 million sinking fund debenture with annual sinking fund payments of $10 million in 19X2, 19X3, and 19X4, $15 million in 19X5 and 19X6, and $20 million in 19X7 and 19X8. The second loan is a $50 million note due in 19X5. The convertible debt has a principal amount of $70 million that is not convertible before maturity in 19X9. This convertible debt requires a 2 percent annual cumulative sinking fund payment of $1.4 million until settled. The $30 million issue of preferred stock requires a 5 percent annual cumulative sinking fund payment of $1.5 million until retired.

##### [470-10-55-12](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-12)

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Entity D's disclosure might be as follows.

-   Maturities and sinking fund requirements on long-term loans and convertible debt and sinking fund requirements on preferred stock subject to mandatory redemption are as follows (in thousands).
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-BEA56435-5D55-4747-8D67-DC82D27E26D9-low.gif)
        
        Long-term loans Preferred stock Convertible debt 19X2 " $10,000 " " $1,500 " " $1,400 " 19X3 " 10,000 " " 1,500 " " 1,400 " 19X4 " 10,000 " " 1,500 " " 1,400 " 19X5 " 65,000 " " 1,500 " " 1,400 " 19X6 " 15,000 " " 1,500 " " 1,400 "

##### [470-10-55-13](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-13)

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The following Cases illustrate various scenarios for refinancing the current portion of long-term debt and notes payable as discussed in paragraphs

[470-10-45-13 through 45-20](https://asc.understandingaccounting.org/asc/470/10/#470-10-45-13)

:

1.  a
    
    Entity refinances on long-term basis the current maturity of long-term debt and notes payable (Case A).
    
2.  b
    
    Laws prohibit the transfer of funds (Case B).
    
3.  c
    
    Entity issues debentures to liquidate the debt (Case C).
    
4.  d
    
    Entity negotiates a revolving credit agreement (Case D).
    
5.  e
    
    Entity negotiates a revolving credit agreement with borrowing limits (Case E).
    
6.  f
    
    Entity refinances commercial paper (Case F).
    
7.  g
    
    Case illustrates balance sheet presentation (Case G).

##### [470-10-55-14](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-14)

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The Cases in this Example do not comprehend all possible circumstances and do not include all the disclosures that would typically be made regarding long-term debt or current liabilities.

##### [470-10-55-15](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-15)

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Cases A through G share all of the following assumptions:

1.  a
    
    Entity A's fiscal year-end is December 31, 19X5.
    
2.  b
    
    The date of issuance of the December 31, 19X5, financial statements is March 31, 19X6; the Entity's practice is to issue a classified balance sheet.
    
3.  c
    
    At December 31, 19X5, short-term obligations include $5,000,000 representing the portion of 6 percent long-term debt maturing in February 19X6 and $3,000,000 of 9 percent notes payable issued in November 19X5 and maturing in July 19X6.
    
4.  d
    
    The Entity intends to refinance on a long-term basis both the current maturity of long-term debt and the 9 percent notes payable.
    
5.  e
    
    Accounts other than the long-term debt maturing in February 19X6 and the notes payable maturing in July 19X6 are as follows.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-59C0DF67-5F7E-4AB2-80D7-D6770804EC7A-low.gif)
        
        Current assets " $30,000,000 " Other assets " $50,000,000 " Accounts payable and accruals " $10,000,000 " Other long-term debt " $25,000,000 " Shareholders' equity " $37,000,000 "
        
6.  f
    
    Unless otherwise indicated, the Cases also assume that the lender or prospective lender is expected to be capable of honoring the agreement, that there is no evidence of a violation of any provision, and that the terms of borrowings available under the agreement are readily determinable.

##### [470-10-55-16](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-16)

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The Entity negotiates a financing agreement with a commercial bank in December 19X5 for a maximum borrowing of $8,000,000 at any time through 19X7 with the following terms:

1.  a
    
    Borrowings are available at Entity A's request for such purposes as it deems appropriate and will mature three years from the date of borrowing.
    
2.  b
    
    Amounts borrowed will bear interest at the bank's prime rate.
    
3.  c
    
    An annual commitment fee of 1/2 of 1 percent is payable on the difference between the amount borrowed and $8,000,000.
    
4.  d
    
    The agreement is cancelable by the lender only if any of the following occur:
    
    1.  1
        
        The Entity's [working capital](https://asc.understandingaccounting.org/glossary/w/#working-capital "Working capital (also called net working capital) is represented by the excess of current assets over current liabilities and identifies the relatively liquid portion of total entity capital that constitutes a margin or buffer for meeting obligations within the ordinary operating cycle of the entity."), excluding borrowings under the agreement, falls below $10,000,000.
        
    2.  2
        
        The Entity becomes obligated under lease agreements to pay an annual rental in excess of $1,000,000.
        
    3.  3
        
        Treasury stock is acquired without the prior approval of the prospective lender.
        
    4.  4
        
        The Entity guarantees indebtedness of unaffiliated persons in excess of $500,000.

##### [470-10-55-17](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-17)

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The Entity's intention to refinance meets the condition specified by paragraph [470-10-45-14](https://asc.understandingaccounting.org/asc/470/10/#470-10-45-14). Compliance with the provisions listed in (d) of the preceding paragraph is objectively determinable or measurable; therefore, the condition specified by paragraph [470-10-45-14(b)(1)](https://asc.understandingaccounting.org/asc/470/10/#470-10-45-14) is met. The proceeds of borrowings under the agreement are clearly available for the liquidation of the 9 percent notes payable and the long-term debt maturing in February 19X6. Both obligations, therefore, would be classified as other than current liabilities.

##### [470-10-55-18](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-18)

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Following are the liability section of Entity A's balance sheet at December 31, 19X5, and the related note disclosures required by this Subtopic, based on the information in paragraphs

[470-10-55-15 through 55-16](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-15)

. Because the balance sheet is issued subsequent to the February 19X6 maturity of the long-term debt, the note describes the refinancing of that obligation.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-37DFF29C-5D5B-46A5-A2FB-EEA74ED02CDC-low.gif)
    
    "December 31, 19X5 " Current Liabilities: Accounts payable and accruals " $10,000,000 " Total Current Liabilities " 10,000,000 " Long-Term Debt: 9% notes payable (Note A) " 3,000,000 " (a) 6% debt due February 19X6 (Note A) " 5,000,000 " (a) Other long-term debt " 25,000,000 " Total Long-Term Debt " 33,000,000 " Total Liabilities " $43,000,000 " (a) "These obligations may also be shown in captions distinct from both current liabilities and long-term debt, such as Interim Debt, Short-Term Debt Expected to Be Refinanced, and Intermediate Debt."
    
-   Note A
    
-   The Entity has entered into a financing agreement with a commercial bank that permits the Entity to borrow at any time through 19X7 up to $8,000,000 at the bank's prime rate of interest. The Entity must pay an annual commitment fee of 1/2 of 1 percent of the unused portion of the commitment. Borrowings under the financing agreement mature three years after the date of the loan. Among other things, the agreement prohibits the acquisition of treasury stock without prior approval by the bank, requires maintenance of working capital of $10,000,000 exclusive of borrowings under the agreement, and limits the annual rental under lease agreements to $1,000,000. In February 19X6, the Entity borrowed $5,000,000 at 8 percent and liquidated the 6 percent long-term debt, and it intends to borrow additional funds available under the agreement to refinance the 9 percent notes payable maturing in July 19X6.

##### [470-10-55-19](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-19)

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A foreign subsidiary of the Entity negotiates a financing agreement with its local bank in December 19X5. Funds are available to the subsidiary for its unrestricted use, including loans to affiliated entities; other terms are identical to those cited in Case A. Local laws prohibit the transfer of funds outside the country.

##### [470-10-55-20](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-20)

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The requirement of paragraph [470-10-45-14(b)(1)](https://asc.understandingaccounting.org/asc/470/10/#470-10-45-14) is met because compliance with the provisions of the agreement is objectively determinable or measurable. Because of the laws prohibiting the transfer of funds, however, the proceeds from borrowings under the agreement are not available for liquidation of the debt maturing in February and July 19X6. Accordingly, both the 6 percent debt maturing in February 19X6 and the 9 percent notes payable maturing in July 19X6 would be classified as current liabilities.

##### [470-10-55-21](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-21)

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Effective as of: not established by retrieval timestamps.


In this Case, the Entity issues $8,000,000 of 10-year debentures to the public in January 19X6. The Entity intends to use the proceeds to liquidate the $5,000,000 debt maturing February 19X6 and the $3,000,000 of 9 percent notes payable maturing July 19X6. In addition, assume the debt maturing February 19X6 is paid before the issuance of the balance sheet, and the remaining proceeds from the sale of debentures are invested in a U.S. Treasury note maturing the same day as the 9 percent notes payable.

##### [470-10-55-22](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-22)

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Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

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Because the Entity refinanced the long-term debt maturing in February 19X6 in a manner that meets the conditions set forth in paragraph [470-10-45-14](https://asc.understandingaccounting.org/asc/470/10/#470-10-45-14), that obligation would be excluded from current liabilities. In addition, the 9 percent notes payable maturing in July 19X6 would also be excluded because the Entity has obtained funds expressly intended to be used to liquidate those notes and not intended to be used in current operations. In balance sheets after the date of sale of the debentures and before the maturity date of the notes payable, the Entity would exclude the notes payable from current liabilities if the U.S. Treasury note is excluded from current assets (see paragraph [210-10-45-4](https://asc.understandingaccounting.org/asc/210/10/#210-10-45-4)).

##### [470-10-55-23](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-23)

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If the debentures had been sold before January 1, 19X6, the $8,000,000 of obligations to be paid would be excluded from current liabilities in the balance sheet at that date if the $8,000,000 in funds were excluded from current assets.

##### [470-10-55-24](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-24)

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If, instead of issuing the 10-year debentures, the Entity had issued $8,000,000 of equity securities and all other facts in this Case remained unchanged, both the 6 percent debt due February 19X6 and the 9 percent notes payable due July 19X6 would be classified as liabilities other than current liabilities, such as Indebtedness Due in 19X6 Refinanced in January 19X6.

##### [470-10-55-25](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-25)

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In December 19X5 the Entity negotiates a revolving credit agreement providing for unrestricted borrowings up to $10,000,000. Borrowings will bear interest at 1 percent over the prevailing prime rate of the bank with which the agreement is arranged but in any event not less than 8 percent, will have stated maturities of 90 days, and will be continuously renewable for 90-day periods at the Entity's option for 3 years provided there is compliance with the terms of the agreement. Provisions of the agreement are similar to those cited in paragraph [470-10-55-16(d)](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-16). Further, the Entity intends to renew obligations incurred under the agreement for a period extending beyond one year from the balance sheet date. There are no outstanding borrowings under the agreement at December 31, 19X5.

##### [470-10-55-26](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-26)

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In this instance, the long-term debt maturing in February 19X6 and the 9 percent notes payable maturing in July 19X6 would be excluded from current liabilities because the Entity consummated a financing agreement meeting the conditions set forth in paragraph [470-10-45-14(b)](https://asc.understandingaccounting.org/asc/470/10/#470-10-45-14) before the issuance of the balance sheet.

##### [470-10-55-27](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-27)

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Assume that the agreement cited in Case D included an additional provision limiting the amount to be borrowed by the Entity to the amount of its inventory, which is pledged as collateral and is expected to range between a high of $8,000,000 during the second quarter of 19X6 and a low of $4,000,000 during the fourth quarter of 19X6.

##### [470-10-55-28](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-28)

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The terms of the agreement comply with the conditions required by this Subtopic; however, because the minimum amount expected to be available from February to December 19X6 is $4,000,000, only that amount of short-term obligations can be excluded from current liabilities (see paragraphs

[470-10-45-16 through 45-19](https://asc.understandingaccounting.org/asc/470/10/#470-10-45-16)

). Whether the obligation to be excluded is a portion of the currently maturing long-term debt or some portions of both it and the 9 percent notes payable depends on the intended timing of the borrowing.

##### [470-10-55-29](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-29)

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If the Entity intended to refinance only the 9 percent notes payable due July 19X6 and the amount of its inventory is expected to reach a low of approximately $2,000,000 during the second quarter of 19X6 but be at least $3,000,000 in July 19X6 and thereafter during 19X6, the $3,000,000 9 percent notes payable would be excluded from current liabilities at December 31, 19X5 (see paragraphs

[470-10-45-16 through 45-19](https://asc.understandingaccounting.org/asc/470/10/#470-10-45-16)

).

##### [470-10-55-30](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-30)

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In lieu of the facts given in paragraph [470-10-55-15(c) through (d)](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-15), assume that during 19X5 the Entity entered into a contract to have a warehouse built. The warehouse is expected to be financed by issuance of the Entity's commercial paper. In addition, the Entity negotiated a standby agreement with a commercial bank that provides for maximum borrowings equal to the expected cost of the warehouse, which will be pledged as collateral. The agreement also requires that the proceeds from the sale of commercial paper be used to pay construction costs. Borrowings may be made under the agreement only if the Entity is unable to issue new commercial paper. The proceeds of borrowings must be used to retire outstanding commercial paper and to liquidate additional liabilities incurred in the construction of the warehouse. At December 31, 19X5, the Entity has $7,000,000 of commercial paper outstanding and $1,000,000 of unpaid construction costs resulting from a progress billing through December 31.

##### [470-10-55-31](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-31)

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Because the commercial paper will be refinanced on a long-term basis, either by uninterrupted renewal or, failing that, by a borrowing under the agreement, the commercial paper would be excluded from current liabilities. The $1,000,000 liability for the unpaid progress billing results from the construction of a noncurrent asset and will be refinanced on the same basis as the commercial paper and, therefore, it would also be excluded from current liabilities (see paragraph [470-10-45-13](https://asc.understandingaccounting.org/asc/470/10/#470-10-45-13)).

##### [470-10-55-32](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-32)

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The following are two methods of presenting liabilities in Entity A's balance sheet at December 31, 19X5, assuming the Entity intends to refinance the 6 percent debt maturing in February 19X6 and the 9 percent notes payable maturing in July 19X6 but has not met the conditions required by this Subtopic to exclude those obligations from current liabilities.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-4118E428-5D95-480B-B90A-8265A0D73596-low.gif)
    
    Alternative 1 "December 31, 19X5" Current Liabilities: Accounts payable and accruals " $10,000,000 " "Notes payable, due July 19X6" " 3,000,000 " 6% debt due February 19X6 " 5,000,000 " Total Current Liabilities " 18,000,000 " Long-Term Debt " 25,000,000 " Total Liabilities " $43,000,000 " Alternative 2 "December 31, 19X5" Current Liabilities: Accounts payable and accruals " $10,000,000 " Short-term debt expected to be refinanced: "Notes payable, due July 19X6" " $3,000,000 " 6% debt due February 19X6 " 5,000,000 " " 8,000,000 " Total Current Liabilities " 18,000,000 " Long-Term Debt " 25,000,000 " Total Liabilities " $43,000,000 "

##### [470-10-55-33](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-33)

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This Example illustrates the guidance in paragraph [470-10-45-15](https://asc.understandingaccounting.org/asc/470/10/#470-10-45-15).

##### [470-10-55-34](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-34)

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This Example has the following assumptions:

1.  a
    
    An Entity has issued $3,000,000 of short-term commercial paper during the year to finance construction of a plant.
    
2.  b
    
    At June 30, 1976, the Entity's fiscal year end, the Entity intends to refinance the commercial paper by issuing long-term debt. However, because the Entity temporarily has excess cash, in July 1976 it liquidates $1,000,000 of the commercial paper as the paper matures.
    
3.  c
    
    In August 1976, the Entity completes a $6,000,000 long-term debt offering.
    
4.  d
    
    Later during the month of August, it issues its June 30, 1976, financial statements.
    
5.  e
    
    The proceeds of the long-term debt offering are to be used to do all of the following:
    
    1.  1
        
        Replenish $1,000,000 in working capital
        
    2.  2
        
        Pay $2,000,000 of commercial paper as it matures in September 1976
        
    3.  3
        
        Pay $3,000,000 of construction costs expected to be incurred later that year to complete the plant.

##### [470-10-55-35](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-35)

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The $1,000,000 of commercial paper liquidated in July would be classified as a current liability in the Entity's balance sheet at June 30, 1976. The $2,000,000 of commercial paper liquidated in September 1976 but refinanced by the long-term debt offering in August 1976 would be excluded from current liabilities in balance sheets at the end of June 1976, July 1976, and August 1976. It should be noted that the existence of a financing agreement at the date the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) rather than a completed financing at that date would not change these classifications.

##### [470-10-55-36](https://asc.understandingaccounting.org/asc/470/10/#470-10-55-36)

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At the end of August 1976, $2,000,000 of cash would be excluded from current assets or, if included in current assets, a like amount of debt would be classified as a current liability.