On December 31, 2012, Santana Company has $7,109,200 of short-term debt in the f

Question

On December 31, 2012, Santana Company has $7,109,200 of short-term debt in the form of notes payable to Golden State Bank due in 2013. On January 28, 2013, Santana enters into a refinancing agreement with Golden that will permit it to borrow up to 60% of the gross amount of its accounts receivable. Receivables are expected to range between a low of $5,078,000 in May to a high of $8,124,800 in October during the year 2013. 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 2017. Santana's December 31, 2012, balance sheet is issued on February 15, 2013. Prepare a partial balance sheet for Santana at December 31, 2012, showing how its $7,109,200 of short-term debt should be presented.

Explanation / Answer

The refinancing has been done before the issuance of the final statement hence the current liability will be reduced Calculation of long term debit: {($8,124,800+ $5,078,000)/2} * 0.6 =3,960,840 Short term liabilities = $7,109,200 - $3,960,840 = $3,148,360

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