Reporting Short Term Borrowings PepsiCo, Inc., manufactures a number of products that are part of our daily lives. Its businesses include Pepsi, Frito Lay, Tropicana, Quaker, and Gatorade. The company’s annual revenues exceed $22 billion. A recent PepsiCo annual report contained the following information:
At the end of the current year, $3.6 billion of short term borrowings were classified as long term, reflecting PepsiCo’s intent and ability to refinance these borrowings on a long term basis, through either long term debt issuances or rollover of existing short term borrowings. The significant amount of short term borrowings classified as long term, as compared to the end of the previous year when no such amounts were reclassified, primarily reflects the large commercial paper issuances in the current year but also resulted from a refined analysis of amounts expected to be refinanced beyond one year.
Required:
As an analyst, comment on the company’s classification of short term borrowings as long term liabilities. What conditions should exist to permit a company to make this type of classification?