One of a firm’s assets is 270-day commercial paper that the firm intends to hold to maturity. One of its liabilities is a short position in a common stock, which the firm holds for trading purposes.
How should this asset and this liability be classified on the firm’s balance sheet?
A. Commercial paper should be classified as current and short position should be classified as non-current.
B. Short position should be classified as current and commercial paper should be classified as non-current.
C. Both should be classified as current.
D. Both should be classified as non-current.
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The Correct Answer
C
The Explanation
The commercial paper should be classified as current because it will be converted to cash in less than a year. A liability that is held primarily for trading purposes, such as this short position, should also be classified as current.