Reporting Liabilities in a Balance Sheet
The following items were taken from the accounting records of Delaware Utility Company for the year ended December 31, 2011 (dollar amounts are in thousands):
Accounts payable | $ 48,000 |
Accrued expenses payable (other than interest) | 7,200 |
10% Bonds payable, due April 1,2012 | 100,000 |
8% Bonds payable, due October 1,2012 | 150,000 |
Unamortized bond discount (8% bonds of 2012) | 270 |
12% Bonds payable, due April 1, 2024 | 300,000 |
Unamortized bond premium (12% bonds of2024) | 2,000 |
Accrued interest payable | 3,650 |
Bond interest expense | 57,000 |
Other interest expense | 8,000 |
Notes payable (short-term) | 75,000 |
Lease obligations--capitalleases | 18,000 |
Pension obligation | 410,000 |
Unfunded obligations for postrefirement benefits other than pensions | 60,000 |
Deferred income taxes | 110,000 |
Income tax expense | 42,000 |
Income tax payable | 8,000 |
Operating income | 341,250 |
Net income | 210,000 |
Total assets | 2,203,950 |
Other Information
1. The 10percent bonds due in April 2012 will be refinanced in March 2012 through the issuance of $125,000 in9 percent, 20-year bonds payable.
2. The 8 percent bonds due October 1, 2012, will berepaid entirely from a bond sinking fund.
3. Delaware Utility is committed to total lease payments of $11 ,000 in 2012. Of this amount,$6,000 is applicable to operating leases, and $5,000 to capital leases. Payments on capitalleases will be applied as follows: $2,000 to interest expense and $3,000 to reduction in thecapitalized lease payment obligation.
4. Delaware Utility’s pension plan is fully funded with anindependent trustee.
5. The obligation for postretirement benefits other than pensions consists of a commitmentto maintain health insurance for retired workers. During 2012, Delaware Utility will fund$16,000 of this obligation.
6. The $8,000 in income taxes payable relates to income taxes levied in 2011 and must be paid on or before March 15,2012. No portion of the deferred tax liability is regarded as a current liability.
Instructions
a. Using this information, prepare the current liabilities and long-term liabilities sections of a classified balance sheet as of December 31, 2011. (Within each classification, items may be listed in.any order.)
b. Explain briefly how the information in each of the six numbered paragraphs affected yourpresentation of thecompany’s liabilities.
c. Compute as of December 31 , 2011 , the company's (1) debt ratio and (2) interest coverage ratio.
d. Solely on the basis of information stated in this problem, indicate. whether this companyappears tobe anoutstanding, medium, or poor long-term credit risk. State specific reasons foryour conclusion.
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