Question

On December 31, 2013, SoBou Co. has $5,000,000 of short-term notes payable due on February 14, 2014. On January 10, 2014, soBou arranged a line of credit with Suntrust Bank which allows SoBou to borow up to $3,500,000 at one percent above the prime rate for three years. On February 3, 2014, 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, 2013 balance sheet which is issued on March 2, 2014 is

A. $0.
B. $500,000.
C. $1,000,000.
D. $1,500,000.

Answer 1

The short-term notes payable that should be reported as a current liability on the December 31, 2013 balance sheet is $1,000,000.

Step-by-step explanation:

The short-term notes payable that should be reported as a current liability on the December 31, 2013 balance sheet, which is issued on March 2, 2014, is $1,000,000 (Option C).

This can be calculated by subtracting the amount borrowed from Suntrust Bank ($3,500,000) from the original amount of short-term notes payable ($5,000,000), and then subtracting the amount used to liquidate the notes ($500,000).

So, $5,000,000 - $3,500,000 - $500,000 = $1,000,000.