Question

On December 31, 2011, Bollinger Co. has $3,000,000 of short-term notes payable due on February 14, 2010. On January 10, 2010, Bollinger arranged a line of credit with Compass Bank which allows Bollinger to borrow up to $1,500,000 at one percent above the prime rate for three years. On February 3, 2012, Bollinger borrowed $1,800,000 from Compass Bank and used $800,000 additional cash to liquidate $2,600,000 of short-term notes payable. The amount of the short-term notes payable that should be reported as a current liability on the December 31, 2011 balance sheet which is issued on March 2, 2012 is

1) $0
2) $400,000
3) $800,000
4) $1,200,000

Answer 1

The amount of short-term notes payable that should be reported as a current liability on the December 31, 2011 balance sheet is $2,200,000. Therefore, the correct option to report the short-term notes payable as a current liability on the December 31, 2011 balance sheet issued on March 2, 2012 is $2,200,000 (option 4)

Step-by-step explanation:

To determine the amount of short-term notes payable that should be reported as a current liability on the December 31, 2011 balance sheet, we need to consider the timing of the borrowing and repayment activities of Bollinger Co.

1. On December 31, 2011, Bollinger had $3,000,000 of short-term notes payable due on February 14, 2010. Since the due date has already passed, this note is considered a long-term liability, not a current liability.

2. On February 3, 2012, Bollinger borrowed $1,800,000 from Compass Bank and used $800,000 additional cash to liquidate $2,600,000 of the short-term notes payable. This means that $800,000 of the short-term notes payable was repaid, leaving a remaining balance of $2,200,000.