Which of the following best describes how the current portion of long-term debt affects the classification of current assets on the balance sheet?

• A. It increases the amount of current assets.
• B. It does not affect the amount of current assets.
• C. It decreases the amount of current assets.
• D. It is included as part of current assets.

Answer: (B)

Verified step by step guidance

1. Understand the concept of the current portion of long-term debt: This refers to the portion of a company's long-term debt that is due within the next 12 months. It is classified as a current liability on the balance sheet, not as an asset.
2. Review the classification of current assets: Current assets are resources that are expected to be converted into cash, sold, or consumed within one year, such as cash, accounts receivable, inventory, and prepaid expenses.
3. Analyze the relationship between current liabilities and current assets: The current portion of long-term debt is a liability, not an asset. Therefore, it does not directly affect the classification or amount of current assets.
4. Clarify why the current portion of long-term debt does not increase, decrease, or become part of current assets: Since liabilities and assets are separate categories on the balance sheet, the current portion of long-term debt is reported under current liabilities and does not impact the current assets section.
5. Conclude that the correct answer is: 'It does not affect the amount of current assets,' because the current portion of long-term debt is strictly a liability and does not influence the classification or value of current assets.