Showing current liabilities immediately below current assets to
obtain a presentation of working capital
Question 9. (TCO D) On December 31, 2010, Irey Co. has $2,000,000
of short-term notes payable due on February 14, 2011. On January
10, 2011, Irey arranged a line of credit with County Bank that
allows Irey to borrow up to $1,500,000 at 1% above the prime rate
for 3 years. On February 2, 2011, Irey 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, 2010 balance sheet issued on March 5, 2011 is
$0.
$300,000.
$500,000.
$800,000.
Question 10. (TCO D) Tender Foot, Inc. is involved in litigation
regarding a faulty product sold in a prior year. The company has
consulted with its attorney and determined that it is possible that it
may lose the case. The attorneys estimated that there is a 40%
chance of losing. Tender Foot’s attorney estimated that if it loses,
then the amount of any payment would be $500,000. What is the
required journal entry as a result of this litigation?