Question

On December 31, 2017, Ivanhoe Company had $1,313,000 of short-term debt in the form of notes payable due February 2, 2018. On January 21, 2018, the company issued 23,200 shares of its common stock for $45 per share, receiving $1,044,000 proceeds after brokerage fees and other costs of issuance. On February 2, 2018, the proceeds from the stock sale, supplemented by an additional $269,000 cash, are used to liquidate the $1,313,000 debt. The December 31, 2017, balance sheet is issued on February 23, 2018. Show how the $1,211,000 of short-term debt should be presented on the December 31, 2017, balance sheet.

Answer 1

They should be reported in 2 different parts, first under current liabilities as:

• Notes payable $269,000

Then under long term liabilities:

• Notes payable expected to be refinanced $1,044,000

Step-by-step explanation:

the total short term notes payable on December 31 = $1,313,000

• $1,044,000 were paid off by issuing common stocks, so that portion of the debt must be reported as notes payable expected to be refinanced (or refinanced debt)
• the remaining $269,000 which were paid using cash reserves must be reported as current notes payable