On December 31, 2006, Frye Co.has $2,000,000 of short-term notes payable due on February 14, 2007.On January 10, 2007, Frye arranged a line of credit with County Bank which allows Frye to borrow up to $1,500,000 at one percent above the prime rate for three years.On February 2, 2007, Frye borrowed $1,200,000 from County Bank and used $500,000 additional cash to liquidate $1,700,000 of the short-term notes payable.The amount of the short-term notes payable that should be reported as current liabilities on the December 31, 2006 balance sheet which is issued on March 5, 2007 is

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Quizplus · Accepted Answer

The $2,000,000 of short-term notes payable due on February 14, 2007 would have been classified as a current liability on the December 31, 2006 balance sheet since they were due within one year. However, on February 2, 2007, $1,700,000 of those notes payable were liquidated, leaving only $300,000 still outstanding. Since the balance sheet is issued on March 5, 2007, after the remaining $300,000 is due, it should still be reported as a current liability. Therefore, the correct answer is D, $800,000 ($500,000 of the original notes payable plus the remaining $300,000).