Question

On December 31, 2010, Irey Co. has $2,000,000 of short-term notes payable due on February 14, 2011. On January 10, 2011, Irey arranged a line of credit with County Bank which allows Irey to borrow up to $1,500,000 at one percent above the prime rate for three years. On February 2, 2011, Irey borrowed $1,200,000 from County Bank and used $500,000 additional cash to liquidate $1,700,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as current liabilities on the December 31, 2010 balance sheet which is issued on March 5, 2011 is

a. $0.
b. $300,000.
c. $500,000.
d. $800,000.

Answer 1

As of December 31, 2010, Irey Co. should report $300,000 as the amount of short-term notes payable on its balance sheet. This figure takes into account the repayment of a portion of the debt prior to the issuance of the balance sheet.

Step-by-step explanation:

The amount of the short-term notes payable that should be reported as current liabilities on the December 31, 2010 balance sheet, which is issued on March 5, 2011 for Irey Co., is $300,000. This accounts for the remaining balance Irey Co. owes after paying off $1,700,000 of its original $2,000,000 debt, with $1,200,000 borrowed from County Bank and $500,000 in additional cash. The amount to be reported on the balance sheet reflects the company's liabilities specifically short-term obligations that are due within one year.