Question

At December 31, 2021, Newman Engineering’s liabilities include the following:

$18 million of 6% bonds were issued for $18 million on May 31, 1999. The bonds mature on May 31, 2029, but bondholders have the option of calling (demanding payment on) the bonds on May 31, 2022. However, the option to call is not expected to be exercised, given prevailing market conditions.

$22 million of 5% notes are due on May 31, 2022. A debt covenant requires Newman to maintain current assets at least equal to 183% of its current liabilities. On December 31, 2021, Newman is in violation of this covenant. Newman obtained a waiver from National City Bank until June 2022, having convinced the bank that the company’s normal 2 to 1 ratio of current assets to current liabilities will be reestablished during the first half of 2022.

$15 million of 8% bonds were issued for $15 million on August 1, 1989. The bonds mature on July 31, 2022. Sufficient cash is expected to be available to retire the bonds at maturity.

Required: Classify the above mentioned debts as current liabilities or noncurrent liabilities. Also, provide corresponding value for the same. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Answer 1

explanation & criven an formation $18 million of 6% bonds were issued for $18 million on may 31, 1999. matured on may 31, 2029 band holders have the option of calling the band on may 31, 2022 in the Quection tells that option to call is not expected to be exercised. is not expected to be calle It is treated as corrent liability of $18 million this $18 million is treated as current liability becaur debt is callable by the creditor on the upcoming year even if the debt xected to be called, it is treated as current liability, here current licebility - $18 millions A It is given that $22 million of st. notes are due an may 31 2022. It is due within the year even if we the exceeting violation il corrected within six months at is treated as current liabilities current liability - $22 million 2) current liability - $ 15 million The debt should be reported as worrent liability because it is payable in the upcoming year and will not be getir with long term obligations

Debt classification millions (8) current liability । जीज current liability $ 22 current licelsillte