ACC 400 Week 3 E-text Individual Assignments

Week 3: E-text Individual Assignments 
Financial Accounting: Tools for Business Decision Making, 4th edition
Chapter 10: Questions 1, 7, 8, and 19

  1. 1.      Georgia Lazenby believes a current liability is a debt that can be expected to be paid in one year. Is Georgia correct? Explain.

            Yes, Georgia Lazenby is correct. “…a current liability is a debt that a company reasonably expects to pay (1) from existing current assets or through the creation of other current liabilities, and (2) within one year or the operating cycle, whichever is longer” (Kimmel, Weygandt, & Kieso, 2007, p. 474).

  1. 7.      a) What are long-term liabilities? Give two examples.

According to Kimmel et al. (2007), “Long-term liabilities are obligations that a company expects to pay after one year” (p.480). Long-term liabilities include bonds and long-term notes.
b) What is a bond?
            Bonds are, “A form of interest-bearing notes payable issued by corporations, universities, and governmental entities” (Kimmel, Weygandt, & Kieso, 2007, p. 505).

  1. 8.      Contrast these types of bonds:

a)      Secured and unsecured.
            Bonds that have specific assets of the issuer pledged as collateral; whereas unsecured bonds are issued against the general credit of the borrower.
b)      Convertible and callable.
            Convertible bonds permit bondholders to convert them into common stock at their option; whereas callable bonds that are the issuing company can retire at a stated dollar amount prior to maturity.

  1. 19.  Valentin Zukovsky says that liquidity and solvency are the same thing. Is he correct? If not, how do they differ?

            No, Valentin Zukovsky is not correct. Liquidity ratios measure the short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash and Solvency ratios measure the ability of a company to survive over a long period of time.
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