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					Ch. 10

Question 1

Georgia Lazenby believes a current liability is a debt that can be expected to be paid in one year. Is
Georgia correct? Explain.

According to the readings Ms. Lazenby is correct. A liability is a debt that should be paid off in a year or
within the operating cycle. All companies have a different operating cycle and it is up to Ms. Lazenby to
know what that cycle is.

Question 7

What are long-term liabilities? Give two examples.

Long term liabilities are liabilities that should be expected to be paid off in one year’s time

Ex: bonds and long term notes

What is a bond?

A bond is an interest bearing note that is issued by the government and or corporation.

Question 8

Contrast these types of bonds:

A: Secured and unsecured

Secured bonds have specific assets of the issuer pledged as collateral and unsecured bonds are issued
against the general credit of the borrower

B: Convertible and callable.

Convertible bonds can convert into common stock at their option and callable bonds are the issuing
company can retire at the dollar amount that was set(maturity)

Question 19

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

Not according to our readings liquidity should be paid in a year’s time and solvency is when you can pay
your debts and have money left over also with solvency you are able to pay of debts that may come up
suddenly (you already have the money available)
BE 10-1

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.

    (a) This is classified as a long term liability not a current one
    (b) At first glance you may think that this is a long-term but it is not. 20,000 of it is current maturity
        and because of this it must be reported as a current liability.
    (c) This is current since it will be paid in the future from current assets.
    (d) Accounts payable of 60,000 is a current liability


What were Tootsie Rolls total current liabilities at December 31, 2004? What was the increase/decrease
in Tootsie Roll’s total current liabilities from the prior year?

The current liabilities at Dec. 31, 2004 were 62,887 and the total current liabilities increased 19,430 over
the prior year.

(b) How much were the accounts payable at Dec 31, 2004?

  The accounts payable at Dec 31, 2004 was 19,315

(c) What were the components of total current liabilities on Dec 31, 2004 (other than accounts payable
already discussed above)?

   Components of the total current liabilities on Dec 31, 2004 are:

    Bank loan                6,333,000

    Dividends payable        3,659,000

    Accrued liabilities      44,722,000

    Income taxes Payable      8,288,000


    A- Who are the stakeholders in this situation
       Stakeholders in this situation are:
       Vicki Lemke, the financial vice- president
       Mr. Mailor, the pres. of Greenwood Corp
       The stockholder of Greenwood Corp

   B- Is there anything unethical about President Mailor’s intentions or actions?
      The part that is not unethical is issuing a stock dividend but when try to convince stockholders
      that the stock dividend is just as good then that is unethical

   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?

       The stock dividends can decrease retained earnings and increase the same in paid in capital and
       this will leave the stockholders equity unchanged.

       I have received stock dividend before and got the cash portion I did not understand what I was
       receiving at the time. Now I believe as a stockholder I would still prefer to get the cash dividend
       since it does not increase nor decrease the assets in the company (kimmel, Weytgandt, & Kieso,

Internet 11-1

   A- Does the company report preferred stock in its balance sheet? If so, how many shares are
      currently outstanding?

       Staples balance sheet Jan 30, 2010 states that 5,000,000 shares of $.01 par value preferred
       stock have been authorized, but no shares issued

   B- How much common stock does the company report in its most recent balance sheet? What is
      the par value of each?
      2,100,000,000 shares were authorized 896,655,170 share was issued at Jan 30, 2010 and on
      Jan 31, 2009 882,032,761. The par value is reported at $.0006.

   C- Does the company report any treasury stock? Has this amount changed since the previous year?

       Staples reports that 167,990,178 shares of stock in treasury a total cost 3,388,395 thousand:
       compared to (2009) of 166,427,240 at a total cost of 3,357,734 thousand. The current year is an
       increase from the prior year.

Kimmel, P., Weygandt, J., & Kieso, D. (2007). Financial Accounting: Tools for Business Decision Making

  (4th ed.) Hoboken, NJ Wiley.

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