Accounting 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.
2. (a) What are long-term liabilities? Give two examples.
(b) What is a bond?
3. Contrast these types of bonds:
(a) Secured and unsecured.
(b) Convertible and callable.
4.Valentin Zukovsky says that liquidity and solvency are the same thing. Is he correct? If not, how do they differ?
5. 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.
6. (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
The solution has various accounting questions relating to secured, unsecured, convertible, callable bonds, liquidity, solvency, cash and stock dividends
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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.
Yes, Georgina is reasonably correct. The correct 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.
2. (a) What are long-term liabilities? Give two examples.
Long term liabilities are obligations that have to be settled in a period of greater than one year. Examples are long term bonds and long term notes payable.
(b) What is a bond?
Bonds are a form of interest bearing long term notes payable issued by various entities. Bonds would have a fixed maturity and would be repaid in full at the end of the maturity. Bonds usually offer a semi annual coupon though there could be other modes of interest payment.
3. Contrast these types of bonds:
(a) Secured and unsecured. - Secured bonds have specific assets of the issuer pledged as collateral. In contrast, unsecured bonds are issued against the general credit of the borrower.
(b) Convertible and callable. - Convertible bonds provide the option to the holder of the bond to get the bonds converted into common shares. Callable ...
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