(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 Georgia is correct. A current liability is a debt that a company reasonably expects to pay (1) from existing current assets or through the creation of other current liabilities, and (2) within one year or the operating cycle; whichever is longer (Kimmel, 2007).
(7) What are longterm liabilities? Give two examples. What is a bond?
Longterm liabilities are obligations that a company expects to pay after one year (Kimmel,
2007). Property, plants, and equipment are examples of long term liabilities.
Bonds are a form of interestbearing note payable issued by corporations, universities, and governmental agencies (Kimmel, 2007).
(8) Contrast these types of bonds: (a) Secured and unsecured. (b) Convertible and callable.
Secured bonds are bonds that have specific assets of the issuer pledged as collateral. Unsecured bonds are bonds that are issued against the general credit of the borrower. Large corporations with good credit ratings use unsecured bonds extensively (Kimmel, 2007).
Bonds that can be converted into common stock at the bondholder’s option are convertible bonds. Bonds that the issuing company can retire at a stated dollar amount prior to maturity are callable bonds. Convertible bonds have features that are attractive both to bondholders and to the issuer (Kimmel, 2007).
(19) Valentin Zukovsky says that liquidity and solvency is the same thing. Is he correct? If not, how do they differ?
No they are not the same. Liquidity ratios measure the…