Not sure how to explain in the best manner, still here it goes :-

3 key points from the question :-

1.) Largo, Inc. had a $750,000 note payable outstanding, due July 31, 1993.

2.) Because Largo temporarily had excess cash, it prepaid $250,000 of the note on January 12, 1993.

3.) On March 3, 1993, Largo issued its 1992 financial statements.

Inter-connect the three dates.

Note was due on July 31, 1993, however, $250,000 out of the total O/S was prepaid on Jan 12, 1993.

Remember, the FS were issued on March 3, 1993 after the note was prepaid.

Thus, it is shown as a current liability as the event which occured related to the transaction O/S at year-end and occured before the FS were issued for 1992.

There is a rule that if you plan to refinance and the funds are obtained before the financial statements are issued then you don't have to show the liability at year-end.

In this example, there was a planned refinance but before the refinance took place a portion of the note was paid ($250,000).  The note was then refinanced before the financial statements for the period were issued.  Since there was a payment of $250,000 the remaining amount was the amount refinanced ($500,000).  Therefore, the rule only applies to the amount actually refinanced of $500,000 and the residual amount of $250,000 should be shown as a liability at 12/31/92.  It should be shown as a current liability because if the note wasn't refinanced it would have been payable at 7/31/93.

Hope this helps.  If you find the rule in your study material and it should make more sense to you.

wow, that's a perfect explanation ... i think it's covered in Becker review - must be F4...