Question

On December 31, 2017, Ivanhoe Company had $1,107,000 of short-term debt in the form of notes payable due February 2, 2018. On January 21, 2018, the company issued 26,800 shares of its common stock for $29 per share, receiving $777,200 proceeds after brokerage fees and other costs of issuance. On February 2, 2018, the proceeds from the stock sale, supplemented by an additional $329,800 cash, are used to liquidate the $1,107,000 debt. The December 31, 2017, balance sheet is issued on February 23, 2018.

Show how the $1,107,000 of short-term debt should be presented on the December 31, 2017, balance sheet.

Answer 1

Answer.

It is given that Pina company has $1,107,000 of short term debt that is notes payable as indicated in balance sheet.

It is due on 02-02-2018.

Therefore it is to be shown as current liabilitiy on the liabilities side of balance sheet.

Pina company has taken the fallowing two plans to pay debt

1) issued 26,800 shares of common stock at the rate of $29 per share. The total fund raised from share issue will be: - Fund raised from share issue (26,800 shares x $29 each) $777,200 2) Use the cash balance of company amounting $329,800. Position of short term debt in December 31, 2017 balance sheet issued on February 23, 2018. The balance of short term debt as notes payable becomes NIL The cash balance shown in the assets side under heading current assets will reduced by $329,800. Issued share capital of new common stock under heading Equity and Capital is increased by $777,200.

Thank you

I hope you understand