Ames, Inc., has $1 million of notes payable due June 15, Year 2. At the financial statement date of December 31, Year 1, Ames signed an agreement to borrow up to $1 million to refinance the notes payable on a long-term basis. The financing agreement called for borrowings not to exceed 80% of the value of the collateral Ames was providing.

At the date of issue of the December 31, Year 1, financial statements, the value of the collateral was $1.2 million and was not expected to fall below this amount during Year 2. In its December 31, Year 1, balance sheet, Ames should classify the notes payable as

Short-Term Obligations, Long-Term Obligations

$0 $1,000,000

$40,000 $960,000

$200,000 $800,000

$1,000,000 $0

Answer rating: 100% (QA)

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