On December 31, 2014, Kate Holmes Company has $ 7,000,000 of short- term debt in the form of notes payable to Golden State Bank due in 2015. On January 28, 2015, Kate Holmes enters into a refinancing agreement with Golden 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 2015. The interest cost of the maturing short- term debt is 15%, and the new agreement calls for a fluctuating interest rate at 1% above the prime rate on notes due in 2019. Kate Holmess December 31, 2014, balance sheet is issued on February 15, 2015.

Instructions Prepare a partial balance sheet for Kate Holmes at December 31, 2014, showing how its $ 7,000,000 of short- term debt should be presented, including footnote disclosure.

Can anyone explain in their own words how to solve this problem? I've already seen the text answer but I still don't understand.

I know the answer is Current liabilities: Notes payable $3,400,000* Long-term debt: Notes payable 3,600,000

For current liabilities [$7,000,000 ($6,000,000 X 60%)] why do you use 6million instead of 8 million