Question: Ames, Inc. has $500,000 of notes payable due June 15, 2012. Ames signed an agreement on December 1, 2011, to borrow up to $500,000 to

Ames, Inc. has $500,000 of notes payable due June 15, 2012. Ames signed an agreement on December 1, 2011, to borrow up to $500,000 to refinance the notes payable on a long-term basis with no payments due until 2013. The financing agreement stipulated that borrowings may not exceed 80% of the value of the collateral Ames was providing.

At the date of issuance of the December 31, 2011 financial statements, the value of the collateral was $600,000 and is not expected to fall below this amount during 2012. In Ames’ December 31, 2011 balance sheet, the obligation for these notes payable should be classified as Short-term Long-term

a. $500,000 $0

b. $100,000 $400,000

c. $ 20,000 $480,000

d. $0 $500,000

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