Week 3 Individual Assignments
1. Georgia Lazenby believes a current liability is a debt that can be expected to be paid in one year. Is Georgia correct? Explain.
Yes Georgia is correct because a current liability is a short-term liability that is to be paid within the accounting cycle which is one year or less.
(a) What are long-term liabilities? Give two examples
Long term liabilities are company obligations that extend beyond the current year, or alternately, beyond the current operating cycle. Examples are debentures and loans.
(b) What is a bond? – It is a form of interest-bearing note payable issued by corporations, universities, and governmental agencies.
(a) Secured and unsecured bonds - A secured bond is backed by collateral and an unsecured bond is not backed with collateral. Collateral is represented with assets that are surrendered if the bond is not repaid.
(b) Convertible and callable bonds - A convertible bond can be converted into stock by an investor and a callable bond is one that can be bought back by the company from the investor before the bond reaches maturity.
Valentin Zukovsky says that liquidity and solvency are the same thing. Is he correct? If not, how do they differ?
Valentin is wrong. Liquidity is a measure of how easily business assets can be converted to cash and solvency is the amount of profit a business has in comparison to its long-term debt.
Ch. 11: Ethics Case: BYP11-10
Greenwood Corporation has paid 60 consecutive quarterly cash dividends (15 years). The last 6 months have been a real cash drain on the company, however, as profit margins have been greatly narrowed by increasing competition. With a cash balance sufficient to meet only day-to-day operating needs, the president, Gil Mailor, has decided that a stock dividend instead of a cash dividend should be declared. He tells Greenwood’s...
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