Accounting 400 Uopx

Only available on StudyMode
  • Download(s) : 145
  • Published : July 22, 2011
Open Document
Text Preview
1. Georgia Lazenby believes a current liability is a debt that can be expected to be paid in one year. Is Georgia correct? Explain.

Is Georgia is correct. The definition of a current liability is A current liability is a debt that can reasonably be expected to be paid: (a) from existing current assets or through the creation of other current liabilities and (2) within one year or the operating cycle, whichever is longer.

7. 1. What are long-term liabilities? Give two examples.

Long term liabilities are those liabilities which would be settled in a period greater than one year. Examples would be bonds payable and long term notes payable

2. What is a bond?

Bonds are a form of liability in which the issuing firm receives cash from the investors and issues bonds which are a form of notes payable and bond usually have a fixed maturity. Bonds usually have a coupon rate and pay interest semi annually. On maturity of the bond the face value is repaid to the investors.

8. Contrast these types of bonds:
1. Secured and unsecured.

The difference between the two relates to the collateral with the bonds. A secured bond is secured against the assets of the firm and so in case of default the assets can be sold to repay the bondholders. In contrast unsecured bonds do not have any assets secured with them, these are issued against the general credit of the borrower and so in case of default these bonds would rank with other unsecured liabilities to be paid off.

2. Convertible and callable.

Convertible bonds are those which have a conversion feature and at the option of the bond holder, the bonds can be converted into common shares. Callable bonds are those which can be called back by the issuer prior to the maturity of the bonds.

19. Valentin Zukovsky says that liquidity and solvency are the same thing. Is he correct? If not, how do they differ?

Liquidity and solvency are not the same thing. Both refer to the ability of a firm to meet its liabilities, they differ in the time period concerned. Liquidity refers to the ability of a firm to repay its current liabilities as and when they become due and so has a short term focus. Solvency refers to the ability of the firm to meet its liabilities over the long term.

Identify whether obligations are current liabilities.
Kananga Company has these obligations at December 31: (a) a note payable for $100,000 due in 2 years, (b) a 10-year mortgage payable of $200,000 payable in ten $20,000 annual payments, (c) interest payable of $15,000 on the mortgage, and (d) accounts payable of $60,000. For each obligation, indicate whether it should be classified as a current liability.

Current liabilities are those which are to be settled in a period of one year or less. If the period exceeds one year, the liability would be classified as long term.

(a) A note payable due in two years is a long-term liability as the time period is 2 years (b) $20,000 of the mortgage payable is a current maturity of long-term debt since it is to be paid within one year. This amount is a current liability. The remaining amount should be reported as a long term liability. (c) Interest payable is a current liability as it would have to be paid in a period of one year or less. (d) Accounts payable is a current liability as it would be settled in the near future.

Refer to the financial statements of Tootsie Roll Industries and the Notes to Consolidated Financial Statements in Appendix A. Instructions

All figures in $ thousands

Answer the following questions.
1. What were Tootsie Roll's total current liabilities at December 31, 2004? What was the increase/decrease in Tootsie Roll's total current liabilities from the prior year?

As on Dec 31, 2004 the current liabilities were $82,317.
As on Dec 31, 2003 the current liabilities were $62,887. The current liabilities increased by $19,430

2. How much were the accounts payable at...
tracking img