On February 10, 2014, After Issuance of Its Financial Statements

question 134

Multiple Choice

On February 10, 2014, after issuance of its financial statements for 2013, Higgins Company entered into a financing agreement with Cleveland Bank, allowing Higgins Company to borrow up to $6,000,000 at any time through 2016. Amounts borrowed under the agreement bear interest at 2% above the bank's prime interest rate and mature two years from the date of loan. Higgins Company presently has $2,250,000 of notes payable with Star National Bank maturing March 15, 2014. The company intends to borrow $3,750,000 under the agreement with Cleveland and liquidate the notes payable to Star National Bank. The agreement with Cleveland also requires Higgins to maintain a working capital level of $9,000,000 and prohibits the payment of dividends on common stock without prior approval by Cleveland Bank. From the above information only, the total short-term debt of Higgins Company as of the December 31, 2013 balance sheet date is

• A) $0.
• B) $2,250,000.
• C) $3,000,000.
• D) $6,000,000.

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Definitions:

Subsidiary Ledger

A detailed ledger that contains all the transaction details of a specific account, which are then summarized in the general ledger.

Control Account

An account in the general ledger that summarizes the balances of a group of related accounts to keep the general ledger streamlined and manageable.

Control Accounts

Summary accounts in the general ledger that consolidate the details recorded in subsidiary ledgers.

General Ledger

A complete record of all financial transactions over the life of a company.