Answer:
1a. <em>The balance sheet at December 31, 2018, for Nevada Harvester Corporation includes the liabilities listed below: 10% bonds with a face amount of $54 million were issued for $54 million on October 31, 2009. The bonds mature on October 31, 2029. Bondholders have the option of calling (demanding payment on) the bonds on October 31, 2019, at a redemption price of $54 million. Market conditions are such that the call is not expected to be exercised. </em>
Answer: The entire amount of $54 million should be included in current liabilities as it is callable by the bondholders at any point of time. The current liability that should be reported is $54 million
1b. <em>Management intended to refinance $11.2 million of its 10% notes that mature in May 2019. In early March, prior to the actual issuance of the 2018 financial statements, Nevada Harvester negotiated a line of credit with a commercial bank for up to $4.8 million any time during 2019. Any borrowings will mature two years from the date of borrowing.</em>
Answer: $6.4 million should be reported as a current liability as the company is unable to refinance this amount. The current liability that should be reported is $6.4 million.
1c. <em>Noncallable 10% bonds with a face amount of $28.0 million were issued for $28.0 million on September 30, 1996. The bonds mature on September 30, 2019. Sufficient cash is expected to be available to retire the bonds at maturity. </em>
Answer: $28 million should be reported as a current liability as it is payable in the current period. The current liability that should be reported is $28 million.
1d. <em>A $19 million 7% bank loan is payable on October 31, 2024. 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, 2018, due primarily to an intentional temporary decline in inventory levels. Normal inventory levels will be reestablished during the first quarter of 2019.</em>
Answer: No amount should be reported as a current liability as it is payable in the current period. The current liability that should be reported is 0.
2. Particulars Amount Amount
Current Liabilities:
Account payable $18,000,000
10% Notes payable $6,400,000
10% Bonds due on 31st Oct $54,000,000
10% Bonds due on 30th Sep <u>$28,000,000</u>
Total Current Liabilities $106,400,000
Non Current Liabilities:
10% Notes payable May 2019 $4,800,000
7% Bank Loan <u>$19,000,000</u>
Total Non Current Liabilities <u>$23,800,000</u>
Total Liabilities <u>$130,200,000</u>
