Question

On December 31, 2016, SoBou Co. has $5,000,000 of short-term notes payable due on February 14, 2017. On January 10, 2017, SoBou arranged a line of credit with Suntrust Bank which allows SoBou to borrow up to $3,500,000 at one percent above the prime rate for three years. On February 3, 2017, SoBou borrowed $3,500,000 from Suntrust and used $500,000 additional cash to liquidate $4,000,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as a current liability on the December 31, 2016 balance sheet which is issued on March 2, 2017 is...(a)$0.(b)$500,000.(c)$1,000,000.(d)$1,500,000.

Answer 1

Answer:c. $1,000,000.00

Step-by-step explanation:

The payment on the short term notes payable of $5million in 2017 in which total sum paid on the loan was $4 million will reduce the balance to $1million.

The additional $3.5 million borrowed will not increase the short term notes payable because it's a long term credit being payable in three years.

The additional five hundred thousand provided by the debtor will also add up to reduce the credit facility.