Detailed Accounting Discussion: Series of Questions
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1. Georgia Lazenby believes a current liability is a debt that can be expected to be paid in one year. Is Georgia correct? Explain.
7. (a) What are long-term Liabilities? Give two examples.
(b) What is a bond?
8. Contrast these types of bonds: (a) Secured and unsecured. (b) Convertible and callable.
19. Valentin Zukovsky says that liquidity and solvency are the same thing. Is he correct? If not, how do they differ?
BE10-1: Kananga Company has these obligations at Dec. 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.
Chapter 11:
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 financial vice-president, Vicki Lemke, to issue a press release stating that the company is extending its consecutive dividend record with the issuance of a 5% stock dividend. "Write the press release convincing the stockholders that the stock dividend is just as good as a cash dividend," he orders. "Just watch our stock rise when we announce the stock dividend; it must be a good thing if that happens."
Instructions
(a) Who are the stakeholders in this situation?
(b) Is there anything unethical about President Mailor's intentions or actions?
(c) What is the effect of a stock dividend on a corporation's stockholders' equity accounts? Which would you rather receive as a stockholder - a cash dividend or a stock dividend? Why?
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Solution Summary
This solution provides a detailed discussion of a series of accounting and finance questions.
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Please find the guidelines and ideas for Notes, Bonds and Dividends in the attached file.
Chapter 10
Answer (1).
Similarity between Current Liability and Debt
Yes, it is correct that current liability is a debt, as both can be expected to pay in one year. Two features are similar between the liability and solvency that company expects to pay the debt from existing current assets and company will pay the debt within one year (Weygandt, Kimmel & Kieso, 2009).
Answer (7).
a).
Long Term Liabilities
Long term liabilities can be defined as an obligation for a company or organization that expects to pay after or beyond one year. In the financial statements, the long term liabilities are shown in the right side of balance sheet as a source of funds. It is also known as the noncurrent liabilities for the companies (Nikolai, Bazley, & Jones, 2009). Some of the common examples of long term liabilities are as follow:
Bank loan
Bonds payable
Long term notes
Mortgages loans
Convertible bonds
b).
Bond
Bond is a debt instrument that is designed as a formal contract between issuer and holders to repay the principle or borrowed money with interest at fixed intervals over a period of time. In the other words, bond can be defined as the debt security that may be issued by the organization to borrow money with a fixed maturity of period and specified rate of interest. It has a maturity period of more than one year that differentiates it from other securities like, commercial papers, and treasury bills (Bonds, 2010). There are many examples of bonds that include zero coupon bonds, fixed rate bonds, floating rate bonds, secured bonds, convertible bonds and callable bonds.
Answer (8).
a).
Contrast between Secured and Unsecured Bonds
Secured bonds are those debts that are secured by an asset and lenders can seize asset as collateral, if borrower fails to make payments or in case of default. The most common examples of secured bonds are mortgage bonds, collateral trusts, and guaranteed bonds that are secured or backed by ...
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