Question

In: Accounting

The balance sheet at December 31, 2021, for Nevada Harvester Corporation includes the liabilities listed below:...

The balance sheet at December 31, 2021, for Nevada Harvester Corporation includes the liabilities listed below:

  1. 11% bonds with a face amount of $38 million were issued for $38 million on October 31, 2012. The bonds mature on October 31, 2032. Bondholders have the option of calling (demanding payment on) the bonds on October 31, 2022, at a redemption price of $38 million. Market conditions are such that the call is not expected to be exercised.
  2. Management intended to refinance $10.5 million of its 9% notes that mature in May 2022. In early March, prior to the actual issuance of the 2021 financial statements, Nevada Harvester negotiated a line of credit with a commercial bank for up to $4.5 million any time during 2022. Any borrowings will mature two years from the date of borrowing.
  3. Noncallable 12% bonds with a face amount of $15.5 million were issued for $15.5 million on September 30, 2002. The bonds mature on September 30, 2022. Sufficient cash is expected to be available to retire the bonds at maturity.
  4. A $26 million 7% bank loan is payable on October 31, 2027. The bank has the right to demand payment after any fiscal year-end in which Nevada Harvester’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, 2021, due primarily to an intentional temporary decline in inventory levels. Normal inventory levels will be reestablished during the first quarter of 2022.


Required:
1. For each liability listed above, what amount will be reported as a current liability and as a noncurrent liability on the December 31, 2021 balance sheet?
2. Prepare the liability section of a classified balance sheet for Nevada Harvester at December 31, 2021. Accounts payable and accruals are $19 million.
  

Solutions

Expert Solution

ques 1
Scenario Current Liability Amount ($ in millions)
a. $38.00
b. $6.00
c. $15.50
d. 0
a. The requirement to classify currently maturing debt as a current liability includes debt that is callable by the creditor in the upcoming year—even if the debt is not expected to be called. So, the entire $38.0 million debt is a current liability
b. $4.5 million can be reported as long term, but $6 million must be reported as a current liability. Short-term obligations that are expected to be refinanced with long-term obligations can be reported as noncurrent liabilities only if the firm (a) intends to refinance on a long-term basis and (b) actually has demonstrated the ability to do so. Ability to refinance on a long-term basis can be demonstrated by either an existing refinancing agreement or by actual financing prior to the issuance of the financial statements. The refinancing agreement in this case limits the ability to refinance to $4.50 million of the notes. In the absence of other evidence of ability to refinance, the remaining $6 million cannot be reported as long term.
c.
The entire $15.50 million maturity amount should be reported as a current liability because that amount is payable in the upcoming year and it will not be refinanced with long-term obligations.
d. The entire $26 million loan should be reported as a long-term liability because that amount is payable in 2024 and it will not be refinanced with long-term obligations.
NEVADA HARVESTER CORPORATION
Balance Sheet (partial)
At December 31, 2018
($ in millions)
Current Liabilities
Accounts payable and accruals $19.00
10% notes payable due May 2019 $6.00
Currently maturing portion of long-term debt:
11% bonds due October 31, 2029 redeemable on October 31, 2019 $38.00
12% Bonds due September 30, 2019 $15.50 $53.50
Total Current Liabilities $78.50
Long-Term Debt
Currently maturing debt classified as long-term:
10% notes payable due May 2019 $            4.50
9% bank loan due October 2024 $          26.00
Total Long-term Liabilities $          30.50
Total Liabilities $        109.00

Related Solutions

The balance sheet at December 31, 2018, for Nevada Harvester Corporation includes the liabilities listed below:...
The balance sheet at December 31, 2018, for Nevada Harvester Corporation includes the liabilities listed below: A. 11% bonds with a face amount of $49 million were issued for $49 million on October 31, 2009. The bonds mature on October 31, 2029. Bondholders have the option of calling (demanding payment on) the bonds on October 31, 2019, at a redemption price of $49 million. Market conditions are such that the call is not expected to be exercised B. Management intended...
On December 31, 2019, the balance sheet for Chowdhury Inc., includes the liabilities listed below: 11%...
On December 31, 2019, the balance sheet for Chowdhury Inc., includes the liabilities listed below: 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. Management intended to refinance $6 million of its 10% notes that mature in May 2020. In...
The data listed below are taken from a balance sheet of Trident Corporation at December 31,...
The data listed below are taken from a balance sheet of Trident Corporation at December 31, 2018. Required: 1. Determine the missing amounts. 2. Prepare Trident's classified balance sheet. Determine the missing amounts. (Enter the answers in thousands of dollars.) ($ in 000s) Cash and cash equivalents $255,286 Short-term investments 370,700 Accounts receivable (net of allowance) 521,944 Inventories Prepaid expenses (current) 100,259 Total current assets 1,764,927 Long-term receivables 127,800 Property and equipment (net) Total assets Notes payable and short-term debt...
The data listed below are taken from a balance sheet of Trident Corporation at December 31,...
The data listed below are taken from a balance sheet of Trident Corporation at December 31, 2021. Required: 1. Determine the missing amounts. 2. Prepare Trident's classified balance sheet. Determine the missing amounts. (Enter the answers in thousands of dollars.) ($ in 000s) Cash and cash equivalents $258,286 Short-term investments 373,700 Accounts receivable 524,944 Inventory Prepaid expenses (current) 103,259 Total current assets 1,794,927 Long-term receivables 130,800 Equipment (net) Total assets Notes payable (current) 51,116 Accounts payable Accrued liabilities 441,772 Other...
The data listed below are taken from a balance sheet of Trident Corporation at December 31,...
The data listed below are taken from a balance sheet of Trident Corporation at December 31, 2021. Required: 1. Determine the missing amounts. 2. Prepare Trident's classified balance sheet. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the missing amounts. (Enter the answers in thousands of dollars.) ($ in 000s) Cash and cash equivalents $258,286 Short-term investments 373,700 Accounts receivable 524,944 Inventory Prepaid expenses (current) 103,259 Total current assets 1,794,927 Long-term receivables...
  The data listed below are taken from a balance sheet of Trident Corporation at December 31,...
  The data listed below are taken from a balance sheet of Trident Corporation at December 31, 2021. Required: 1. Determine the missing amounts. 2. Prepare Trident's classified balance sheet. Determine the missing amounts. (Enter the answers in thousands of dollars.) ($ in 000s) Cash and cash equivalents $248,286 Short-term investments 363,700 Accounts receivable 514,944 Inventory Prepaid expenses (current) 93,259 Total current assets 1,694,927 Long-term receivables 120,800 Equipment (net) Total assets Notes payable (current) 41,116 Accounts payable Accrued liabilities 431,772 Other...
The data listed below are taken from a balance sheet of Trident Corporation at December 31,...
The data listed below are taken from a balance sheet of Trident Corporation at December 31, 2018. Required: 1. Determine the missing amounts. 2. Prepare Trident's classified balance sheet. ($ in 000s) Cash and cash equivalents $244,286 Short-term investments 359,700 Accounts receivable (net of allowance) 510,944 Inventories Prepaid expenses (current) 89,259 Total current assets 1,654,927 Long-term receivables 116,800 Property and equipment (net) Total assets Notes payable and short-term debt 37,116 Accounts payable Accrued liabilities 427,772 Other current liabilities 187,604 Total...
The data listed below are taken from a balance sheet of Trident Corporation at December 31,...
The data listed below are taken from a balance sheet of Trident Corporation at December 31, 2018. Required: 1. Determine the missing amounts. 2. Prepare Trident's classified balance sheet.    Determine the missing amounts. (Enter the answers in thousands of dollars.) ($ in 000s) Cash and cash equivalents $250,286 Short-term investments 365,700 Accounts receivable (net of allowance) 516,944 Inventories Prepaid expenses (current) 95,259 Total current assets 1,714,927 Long-term receivables 122,800 Property and equipment (net) Total assets Notes payable and short-term...
Oriole Company’s balance sheet at December 31, 2021, is presented below. Oriole Company Balance Sheet December...
Oriole Company’s balance sheet at December 31, 2021, is presented below. Oriole Company Balance Sheet December 31, 2021 Cash $13,680 Accounts payable $8,900 Accounts receivable 21,100 Common stock 21,800 Allowance for doubtful accounts (740) Retained earnings 13,330 Inventory 9,990 $44,030 $44,030 During January 2022, the following transactions occurred. Oriole uses the perpetual inventory method. Jan. 1 Oriole accepted a 4-month, 8% note from Betheny Company in payment of Betheny’s $4,800 account. 3 Oriole wrote off as uncollectible the accounts of...
Oriole Company’s balance sheet at December 31, 2021, is presented below. Oriole Company Balance Sheet December...
Oriole Company’s balance sheet at December 31, 2021, is presented below. Oriole Company Balance Sheet December 31, 2021 Cash $13,680 Accounts payable $8,900 Accounts receivable 21,100 Common stock 21,800 Allowance for doubtful accounts (740) Retained earnings 13,330 Inventory 9,990 $44,030 $44,030 During January 2022, the following transactions occurred. Oriole uses the perpetual inventory method. Jan. 1 Oriole accepted a 4-month, 8% note from Betheny Company in payment of Betheny’s $4,800 account. 3 Oriole wrote off as uncollectible the accounts of...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT