Question

The balance sheet at December 31, 2021, for Nevada Harvester Corporation includes the liabilities listed below: a. 12% bonds with a face amount of $37 million were issued for $37 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 $37 million. Market conditions are such that the call is not expected to be exercised. b. Management intended to refinance $11.7 million of its 15% 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 $5.5 million any time during 2022. Any borrowings will mature two years from the date of borrowing. c. Noncallable 14% bonds with a face amount of $22.0 million were issued for $22.0 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. d. A $8 million 12% 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 $21 million.

Answer 1

Answer Page No 6 O Current liability of Non current liability on dec 31 balance sheet @ The face amount $34 million should be seposited as Current liability as it is callable by the bond holders at any point of time. O the amount ( lit - 515 Joillion = $6.2 million should be oveposited as Cerent liabililiy as the company is onable to orebinance this amoont © $ 20 million should be reported as current liabilalü as is payable in current period. No amount should be vepooted as Current liabillig , entive amount will be treated as long term debt. Scenario Corrent liability (millions) nie Lamed with coll Non current liability og millions) $37

Page.no @ $ 6.2 @ biability sebion of classified balance sheet for Nevada Harvesten at dec 31, 208) :- Amount Particular Amount (million) (million) Current liabilities Accounts payable and accouals $ 21 184. nobes payable due May 2012 Cuveeothy naturing peation of long term debt lQ7. bonds due oct 31, redeemable on oct 31,202 $34 14% bonds due september 30, 2022 $22 . $59 Total current liabilities $86.2 Long term debt: Currently maturing debt classified as long term: 154. notes payable due May.2002 : 12% bank loan dues october 2024 Total long term liabilities $1315 Total liabilities $99.7 $ 515