On December 31, 2020, Holmes Company has $7,000,000 of short-term debt in the form of notes payable to Gotham State Bank due in 2021. On ­December 28, 2020, Holmes enters into a refinancing agreement with Gotham that will permit it to borrow up to 60% of the gross amount of its accounts receivable. Receivables are expected to range between a low of $6,000,000 in May to a high of $8,000,000 in October during the year 2021. The interest cost of the maturing short-term debt is 15%, and the new agreement calls for a fluctuating interest at 1% above the prime rate on notes due in 2025. Holmes’s December 31, 2020, balance sheet is issued on February 15, 2021.
Instructions
Prepare a partial balance sheet for Holmes at December 31, 2020, showing how its $7,000,000 of short-term debt should be presented, including footnote disclosure.

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