Exercise 13-9 On December 31, 2017, Swifty Company has $6,982,000 of short-term

Question

Exercise 13-9

On December 31, 2017, Swifty Company has $6,982,000 of short-term debt in the form of notes payable to Gotham State Bank due in 2018. On January 28, 2018, Swifty enters into a refinancing agreement with Gotham that will permit it to borrow up to 54% of the gross amount of its accounts receivable. Receivables are expected to range between a low of $5,982,000 in May to a high of $7,980,000 in October during the year 2018. The interest cost of the maturing short-term debt is 15%, and the new agreement calls for a fluctuating interest at 1% above the prime rate on notes due in 2022. Swifty’s December 31, 2017, balance sheet is issued on February 15, 2018.

Prepare a partial balance sheet for Swifty at December 31, 2017, showing how its $6,982,000 of short-term debt should be presented. (Enter account name only and do not provide descriptive information.)

Explanation / Answer

SWITY COMPANY partial balance sheet December 31,2017 Amount in $ Current Liabiltiies Note payable (note1)        37,51,720 Long term debt Note payable expected to be refinanced in 2018 (note 1)        32,30,280 Note :1 Note:1 Under a financing agreement with Gotham State Bank the Company may borrow up to 54% of the gross amount of its accounts receivable at an interest cost of 1% above the prime rate. The Company intends to issue notes maturing in 2022 to replace $3,230,280 of short-term, 15%, notes due periodically in 2018. Because the amount that can be borrowed is expected to range from $3,230,280 to $4,309,200, only $3,230,280 of the $6,982,000 of currently maturing debt has been reclassified as long-term debt Note payable under current liabilities =$6982,000-$3,230,280 =$3751,720

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