Business management
(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 long-term liabilities? Give two examples. What is a bond?

Long-term 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 interest-bearing 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 short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash. Solvency ratios measure the ability of a company to survive over a long period of time (Kimmel, 2007).

(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.
(A) NO, (B) Yes, (C) Yes, (D) Yes

(BYP10-1)
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?