Question

In: Accounting

Branch Company, a building materials supplier, has $17,400,000 of notes payable due April 12, 2019. At...

Branch Company, a building materials supplier, has $17,400,000 of notes payable due April 12, 2019. At December 31, 2018, Branch signed an agreement with First Bank to borrow up to $17,400,000 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, 2018, financial statements, the value of Branch's collateral was $19,800,000. On its December 31, 2018, balance sheet, Branch should classify the notes as follows:

Multiple Choice

  • $4,350,000 long-term and $13,050,000 current liabilities.

  • $17,400,000 of long-term liabilities.

  • $17,400,000 of current liabilities.

  • $14,850,000 long-term and $2,550,000 current liabilities.

Solutions

Expert Solution

Answer:
Given borrowings would not exceed 75% of the value of the collateral
Long Term liabilities   = Branch's collateral x 75%
                                             =    $19,800,000 x 75%
                                             =     $14,850,000
Given Total Liabilities = $17,400,000
Current liabilities   = Total Liabilities (-) Long Term liabilities
                                       =     $17,400,000 (-) $14,850,000
                                       =      $2,550,000
Option (D) is correct
$14,850,000 long-term and $2,550,000 current liabilities.

ekkarill92 answered 2 years ago
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