On December 31, 2020, Pina Colada Corporation has $8.71 million of short-term debt in the form...
On December 31, 2020, Pina Colada Corporation has $8.71 million
of short-term debt in the form of notes payable that are due in
2021 to Provincial Bank. On January 28, 2021, Pina Colada enters
into a refinancing agreement with the bank that permits it to
refinance its debt by up to 59% of the gross amount of its accounts
receivable. Receivables are expected to range between a low of $5.9
million in February and a high of $8 million in October during the
year 2021. The interest cost of the maturing short-term debt is
12%, and the new agreement calls for a fluctuating interest rate at
1% points above the prime rate (currently prime is 8%) with the
notes due in 2022. Pina Colada informed the bank that it wishes to
refinance as much of its debt as possible prior to its December 31,
2020 balance sheet being issued on February 15, 2021.
(a)
Assuming that Pina Colada follows ASPE, prepare a partial balance
sheet for Pina Colada Corporation at December 31, 2020 that shows
how its $8.71 million of short-term debt should be presented.
| Pina Colada
Corporation Partial Balance Sheet December 31, 2020 |
||
|---|---|---|
| current liabilities | ||
| notes payable | $___________________________ | |
| long term debt | ||
| notes payable expected to be refined by 2021 | $_____________________________ | |
Homework Answers
| PINA COLADA CORPORATION | |||||||||
| Partial Balance Sheet | |||||||||
| Decemebr 31, 2020 | |||||||||
| Amount in million | |||||||||
| Current Liabilities: | |||||||||
| Notes payable (Note 1) | $ 5.229 | ||||||||
| Long term debt: | |||||||||
| Notes payable expected to be refinanced in 2021 | $ 3.481 | ||||||||
| Note 1 | |||||||||
| Under a financing agreement with Provincial Bank the Company may borrow up to 59% of the gross amount of its accounts receivables at an interest cost of 1% above the prime rate. The company intends to issue notes maturing in 2022 to replace $ 3.481 million of short term, 12%, notes due periodically in 2020. Because the amount that can be borrowed is expected to range from $ 3.481 million to $ 4.72 million, only $ 3.481 million of the $ 8.71 million of currently maturing debt has been reclassified as long term debt | |||||||||
| Working: | |||||||||
| $ 5.9 million*59% = $ 3.481 million | |||||||||
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