Exercise 13-13 Current-noncurrent classification of debt [LO13-1, 13-4] At Decem

Question

Exercise 13-13 Current-noncurrent classification of debt [LO13-1, 13-4] At December 31, 2018, Newman Engineering's liabilities include the following: 1. $11 million of 5% bonds were issued for $11 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, 2019. However, the option to call is not expected to be exercised, given prevailing market conditions. 2, $15 million of 4% notes are due on May 31, 2022. A debt covenant requires Newman to maintain current assets at least equal to 176% of its current liabilities. On December 31, 2018, Newman is in violation of this covenant. Newman obtained a waiver from National City Bank until June 2019, 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 2019. 3. $8 million of7% bonds were issued for $8 million on August 1, 1989. The bonds mature on July 31, 2019. 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 answer in millions (i.e., 10,000,000 should be entered as 10).) Million(s)

Explanation / Answer

1 Cuurent Liability: $11 Million The company Classify the Current maturity debt as Current liability including the callable debt by the Creditor in Future Year. 2 Long Term liability: $15 Million In the given situation, Existing Voilation is expected to be corrected with Six Month . Hence it should classified as long term Liability 3 Current Liability: $8 Million The debt is payable in future year and it will not be refinance with long term obligation. Hence it should be classified as current liability

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