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At December 31, 2016, Newman Engineering's liabilities include the following: 1. $10 million of...

Question:

At December 31, 2016, Newman Engineering's liabilities include the following:

1. $10 million of 9% bonds were issued for $10 million on May 31, 1997. The bonds mature on May 31, 2027, but bondholders have the option of calling (demanding payment on) the bonds on May 31, 2017. However, the option to call is not expected to be exercised, given prevailing market conditions.

2. $14 million of 8% notes are due on May 31, 2020. A debt covenant requires Newman to maintain current assets at least equal to 175% of its current liabilities. On December 31, 2016, Newman is in violation of this covenant. Newman obtained a waiver from National City Bank until June 2017, 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 2017.

3. $7 million of 11% bonds were issued for $7 million on August 1, 1987. The bonds mature on July 31, 2017. Sufficient cash is expected to be available to retire the bonds at maturity.

Required: What portion of the debt can be reported as a noncurrent liability? (Enter your answer in millions (i.e., 10,000,000 should be entered as 10).)

Non-Current Liabilities:

The non-current liabilities are the liabilities that are held for more than a year. It is also shown in the balance sheet of the company. Its example is debentures, bank loans, bonds payable, etc.

Answer and Explanation:

$14 million of 8% notes are the non-current portion of the debt as the non-current liabilities as it will mature on 31 May 2020.


Learn more about this topic:

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Current & Long-Term Liabilities: Definition & Characteristics

from Accounting 101: Financial Accounting

Chapter 10 / Lesson 1
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