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