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Chapter 10: Questions 1, 7, 8, and 19

Question 1: Georgia Lazenby believes a current liability is a debt

that can be expected to be paid in one year. Is Georgia

correct? Explain.

Question 7: (a) What are long-term liabilities? Give two examples.

(b) What is a bond?

Question 8: Contrast these types of bonds:

(a) Secured and unsecured.

(b) Convertible and callable.

Question 19: Valentin Zukovsky says that liquidity and

solvency are the same thing. Is he correct? If not, how

do they differ?

Chapter 10: Exercise Brief Exercise BE 10-1

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.

Chapter 10: Financial Reporting Problem: BYP10-1

FINANCIAL REPORTING PROBLEM: Tootsie Roll Industries

BYP10-1 Refer to the financial statements of Tootsie Roll Industries and the Notes to

Consolidated Financial Statements in Appendix A. (I need to find this)

Instructions

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)?

Chapter 11:

BYP11-10 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.”

Instructions

(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?