On December 31, 2017, Kate Holmes Company has $7,000,000 of short-term debt in the form of notes payable to Gotham State Bank due in 2018. On January 28, 2018, Holmes enters into a refinancing agreement with Gotham that will permit it to borrow up to 60% of the gross amount of its accounts receivable. Receivables are expected to range between a low of $6,000,000 in May to a high of $8,000,000 in October during the year 2018. The interest cost of the maturing short-term debt is 15%, and the new agreement calls for a fluctuating interest at 1% above the prime rate on notes due in 2022, Holmes's December 31, 2017, balance sheet is issued on February 15, 2018.
Prepare a partial balance sheet for Holmes at December 31, 2017, showing how its $7,000,000 of short-term debt should be presented.
Long term debt
Any debt which is issued for the more than the twelve months in the company and interest is paid on the debt is known as the long term debt. which is recorded in the long term liabilities section.
Answer and Explanation:
|Notes payable (7,000,000 - 3,600,000)||$3,400,000|
|Long term debt|
|Notes payable expected to be refinanced in 2015 (6,000,000 * 60%)||$3,600,000|
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from Accounting 101: Financial AccountingChapter 10 / Lesson 1