Georgia Lazenby believes a current liability is a debt that can be expected to be paid in one year. Is Georgia correct? Explain.
(a) What are long-term liabilities? Give two examples.
(b) What is a bond?
Contrast these types of bonds:
(a) Secured and unsecured.
(b) Convertible and callable.
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 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.
BYP10-1 Refer to the financial statements of Tootsie Roll Industries and the Notes to Consolidated Financial Statements in Appendix A.
Answer the following questions.
(a) 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?
(b) How much were the accounts payable at December 31, 2004?
(c) What were the components of total current liabilities on December 31, 2004 (other
than accounts payable already discussed above)?
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.”
(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?