Question

1. On December 31, 2019, the balance sheet for Chowdhury Inc., includes the liabilities listed below:
   1. 11% callable bonds (call price 101) with a face amount of $40 million were issued for $40 million on October 31, 2010. The bonds mature on October 31, 2030, at a redemption price of $40 million. Market conditions are such that the call is not expected to be exercised.
   2. Management intended to refinance $6 million of its 10% notes that mature in May 2020. In early March, prior to the actual issuance of the 2019 financial statements, Chowdhury Inc., negotiated a line of credit with a commercial bank for up to $5 million any time during 2020. Any borrowings will mature two years from the date of borrowing.
   3. Noncallable 12% bonds with a face amount of $20 million were issued for $20 million on September 30, 2000. The bonds mature on September 30, 2020. Sufficient cash is expected to be available to retire the bonds at maturity.
   4. A $12 million 9% bank loan is payable on October 31, 2025. The bank has the right to demand payment after any fiscal year-end in which Chowdhury’s ratio of current assets to current liabilities falls below a contractual minimum of 1.7 to 1 and remains so for six months. That ratio was 1.45 on December 31, 2019, due primarily to an intentional temporary decline in inventory levels. Normal inventory levels will be reestablished during the first quarter of 2020.

Required:

1. For items a – d determine the amount that can be reported as a current liability and as a noncurrent liability. Explain the reasoning behind your classifications.
2. Prepare the liability section of a classified balance sheet and any necessary note disclosure for Chowdhury at December 31, 2019. Accounts payable and accruals are $32 million.

Answer 1