On December 31, 2007, Kate Holmes company has $7,000,000 ofshort-term debt in the form of notes payable to Gotham Bank due in2008. On Jan. 2008, Holmes enters into a refinancingagreement with Gotham that will permit it to borrow up to 60% ofthe gross amount of its accounts receivable. Receivables areexpected to range between a low of $6,000,000 in May to a high of$8,000,000 in October during the year 2008. The interest cost ofthe maturing short-term debt is 15% and the new agreement calls fora fluctuating interest at 1% above the prime rte on notes due in2012. Holmes December 31, 2007, balance sheet is issued on February15, 2008.
Instructions:
Prepare a partial balance for Holmes at December 31, 2007,showing how its $7,000,000 of short-term debt should be presented,including footnotes.