On December 31, 20X5, Gold Charter Airlines has $2,000,000 in short-term notes payable due on February 10, 20X6. On January 10, 20X6, Gold arranged a line of credit with Fargo Wells Bank, which allows Gold to borrow up to $1,500,000 at 1% above the prime rate for three years. On February 2, 20X6, Gold borrowed $1,200,000 from Fargo Wells Bank and used $500,000 additional cash to liquidate $1,700,000 of the short-term notes payable. What is the amount of the short-term notes payable that should be reported as current liabilities on Gold's December 31, 20X5 statement of ﬁnancial position (to be issued on Feb 28, 20X5) is
A) $0
B) $300,000
C) $2,000,000
D) $1,200,000

Question

Quizplus · Accepted Answer

The correct answer is $2,000,000 because the financial statements reflect the company's position as of the balance sheet date, December 31, 20X5. At that time, the entire $2,000,000 in short-term notes payable was due within the next year and had not yet been refinanced or paid off. The subsequent refinancing and partial payment in January and February 20X6 do not affect the December 31, 20X5, financial statements.

On December 31, 20X5, Gold Charter Airlines Has $2,000,000 in Short-Term