Branch Company, a building materials supplier, has $18,000,000 of notes payable

Question

Branch Company, a building materials supplier, has $18,000,000 of notes payable due April 12, 2010. At December 31, 2009, Branch signed an agreement with First Bank to borrow up to $18,000,000 to refinance the notes on a long-term basis. The agreement specified that borrowings would not exceed 75% of the value of the collateral that Branch provided. At the date of issue of the December 31, 2009, financial statements, the value of Branch's collateral was $20,000,000. On its December 31, 2009, balance sheet, Branch should classify the notes as follows:

      $15,000,000 long-term and $3,000,000 current liabilities.
      $4,500,000 short-term and $13,500,000 current liabilities.
      $18,000,000 of current liabilities.
       $18,000,000 of long-term liabilities

Explanation / Answer

Hi,

Option A (15,000,000 long-term and $3,000,000 current liabilities) is the correct answer.

Thanks.

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