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. 1. What are long-term liabilities? Give two examples.
2. What is a bond?
8. Contrast these types of bonds:
1. Secured and unsecured.
2. Convertible and callable.
19. Valentin Zukovsky says that liquidity and solvency are the same thing. Is he correct? If not, how do they differ?
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.
Refer to the financial statements of Tootsie Roll Industries and the Notes to Consolidated Financial Statements in Appendix A.
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?
2. How much were the accounts payable at December 31, 2004?
3. What were the components of total current liabilities on December 31, 2004 (other than accounts payable already discussed above)?
The R&D division of Renew Corp. has just developed a chemical for sterilizing the vicious Brazilian "killer bees" which are invading Mexico and the southern United States. The president of Renew is anxious to get the chemical on the market because Renew profits need a boost-and his job is in jeopardy because of decreasing sales and profits. Renew has an opportunity to sell this chemical in Central American countries, where the laws are much more relaxed than in the United States.
The director of Renew's R&D division strongly recommends further research in the laboratory to test the side effects of this chemical on other insects, birds, animals, plants, and even humans. He cautions the president, "We could be sued from all sides if the chemical has tragic side effects that we didn't even test for in the lab." The president answers, "We can't wait an additional year for your lab tests. We can avoid losses from such lawsuits by establishing a separate wholly owned corporation to shield Renew Corp. from such lawsuits. We can't lose any more than our investment in the new corporation, and we'll invest just the patent covering this chemical. We'll reap the benefits if the chemical works and is safe, and avoid the losses from lawsuits if it's a disaster." The following week Renew creates a new wholly owned corporation called Offspring Inc., sells the chemical patent to it for $10, and watches the spraying begin.
1. Who are the stakeholders in this situation?
2. Are the president's motives and actions ethical?
3. Can Renew shield itself against losses of Offspring Inc.?
Stockholders' Equity Items
Visit the home page of Staples, Inc., at the following Internet address:
Locate the company's most current balance sheet by selecting Corporate Information.
Answer the following questions:
1. Does the company report preferred stock in its balance sheet? If so, how many shares are currently outstanding?
2. How much common stock does the company report in its most recent balance sheet? What is the par value of each?
3. Does the company report any treasury stock? Has this amount changed since the previous year?
Internet sites are time and date sensitive. It is the purpose of these exercises to have you explore the Internet. You may need to use the Yahoo! search enginehttp://www.yahoo.com(or another favorite search engine) to find a company's current Web address.
The solution explains various questions relating to bonds and long term liabilities
Explain the difference between calling a bond and bond refunding.
Identify the three most important determinants of the price of a bond. Describe the effect of each.
Given a change in the level of interest rates, discuss how two major factors will influence the relative change in price for individual bonds.
Briefly describe two indenture provisions that can affect the maturity of a bond.
Explain the differences in taxation of income from municipal bonds, from U.S. Treasury bonds, and from corporate bonds.
For several institutional participants in the bond market, explain what type of bond each is likely to purchase and why.
Why should investors be aware of the trading volume for bonds in their portfolio?
What is the purpose of bond ratings?
Based on the data in Exhibit 17.2 discuss the makeup of the Japanese bond market and how and why it differs from the U.S. market.
2010 ( e )
Total Value Percent of Total
A. U.S. Dollars
Sovereign 5,309,688 34.5
Quasi & Foreign Govt. 1,939,190 12.6
Securitized/Collateralized 4,247,750 27.6
Corporate 2,801,053 18.2
High-Yield/Emerging Mkt. 1,108,109 7.1
Total 15,405,790 100.0
Sovereign 6,914,941 64.1
Quasi & Foreign Govt. 852,231 7.9
Securitized/Collateralized 1,326,892 12.3
Corporate 1,564,222 14.5
High-Yield/Emerging Mkt. 140,241 1.3
Total 10,798,527 100.0
C. Japanese Yen
Sovereign 4,659,743 81.4
Quasi & Foreign Govt. 429,337 7.5
Securitized/Collateralized 5,724 0.1
Corporate 635,420 11.1
High-Yield/Emerging Mkt. - 0.0
Total 5,730,224 100.0
D. Pound Sterling
Sovereign 792,517 50.2
Quasi & Foreign Govt. 202,076 12.8
Securitized/Collateralized 94,723 6.0
Corporate 472,037 29.9
High-Yield/Emerging Mkt. 17,366 1.1
Total 1,578,719 100.0
Discuss the positives and negatives of investing in a government agency issue rather than a straight Treasury bond.