On December 31, 2010, Irey Co. has $2,000,000 of short-term notes payable due on

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.

Explanation / Answer

The correct answer is Option D i.e. $800,000

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 = $2,000,000 - $1,200,000

........................................= $800,000

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