Question

On February 10, 2018, after issuance of its financial statements for 2017, Higgins Company entered into a financing agreement with Cleveland Bank, allowing Higgins Company to borrow up to $8,000,000 at any time through 2020. Amounts borrowed under the agreement bear interest at 2% above the bank's prime interest rate and mature two years from the date of loan. Higgins Company presently has $3,000,000 of notes payable with Star National Bank maturing March 15, 2018. The company intends to borrow $5,000,000 under the agreement with Cleveland and liquidate the notes payable to Star National Bank. The agreement with Cleveland also requires Higgins to maintain a working capital level of $12,000,000 and prohibits the payment of dividends on common stock without prior approval by Cleveland Bank. From the above information only, the total short-term debt of Higgins Company as of the December 31, 2017 balance sheet date is Group of answer choices $0. $3,000,000. $4,000,000. $8,000,000.

Answer 1

Answer:

$3,000,000

Explanation:

Short term debt: The short term debt is those debts that are due for a less period i.e less than 12 months or one year. It is shown under the current liabilities on the balance sheet side.  

In the question, it is given that the $3,000,000 note payable is mature on  March 15, 2018, and we record the same on December 31, 2017 balance sheet. If we see the time period between these two dates so it will be less than 12 months. That's why we consider as a total short term debt