Ames, Inc., has $1 million of notes payable due June 15, Year 2. At the financia

Question

Ames, Inc., has $1 million of notes payable due June 15, Year 2.  At the financial statement date of December 31, Year 1, Ames signed an agreement to borrow up to $1 million to refinance the notes payable on a long-term basis. The financing agreement called for borrowings not to exceed 80% of the value of the collateral Ames was providing.  At the date of issue of the December 31, Year 1, financial statements, the value of the collateral was $1.2 million and was not expected to fall below this amount during Year 2. In its December 31, Year 1, balance sheet, Ames should classify the notes payable as

Short-Term Obligations, Long-Term Obligations

$0, $1,000,000

$40,000, $960,000

$200,000, $800,000

$1,000,000, $0

$0, $1,000,000

$40,000, $960,000

$200,000, $800,000

$1,000,000, $0

Explanation / Answer

value of the collateral was $1.2 million

so 80% =

960000

so long term = 960000

balance = 1000000-960000 = 40000 is short term

option b is correct.

960000

so long term = 960000

balance = 1000000-960000 = 40000 is short term

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