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Daniel [21]
3 years ago
13

On December 31, 2020, Larkspur Company has $7,016,000 of short-term debt in the form of notes payable to Gotham State Bank due i

n 2021. On December 28, 2020, Larkspur enters into a refinancing agreement with Gotham that will permit it to borrow up to 61% of the gross amount of its accounts receivable. Receivables are expected to range between a low of $6,006,000 in May to a high of $8,008,000 in October during the year 2021. 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 2025. Larkspur December 31, 2020, balance sheet is issued on February 15, 2021. Prepare a partial balance sheet for Larkspur at December 31, 2020, showing how its $7,016,000 of short-term debt should be presented.
Business
1 answer:
malfutka [58]3 years ago
3 0

Answer:

Short term debt after the reclasification: 3,352,340

Explanation:

The company expect to borrow from their receivables.

As the lower amount expecteed for the receivables is 6,006,000

we will refinance up to 61% of this amount thus:

6.006.000 x 61% = 3.663.660

This is the amount the company will expect to refinance with new notes payable instead of honor the original note.

short term debt  7,016,000

less                   <u>  3,663,660 </u>reclassified as long term

new short-debt  3,352,340‬

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