At December 31, 2020, Kisu Company’s liabilities include the following:A. P10 million of 10% notes are due on March 31, 2015. The financing agreement contains a covenant that requires Kisu to maintain current assets at least equal to 200% of its current liabilities. As of December 31, 2020, Kisu has breached this loan covenant. On February 10, 2021, before Kisu’s financial statements are authorized for issue, Kisu obtained a period of grace from Mayumi Bank until January 31, 2022, having convinced the bank that the company’s normal 3 to 1 ratio of current assets to current liabilities will be reestablished during 2021.B. P15 million of non-cancelable 12% bonds were issued at face value on September 30, 1989. The bonds mature on August 31, 2021. Kisu expects to have sufficient cash available to redeem the bonds at maturity.C. P20 million of 10% bonds were issued at face value on June 30, 1991. The bonds mature on June 30, 2020, but bondholders have the option to call or demand payment on the bonds on June 30, 2021. However, the call option is not expected to be exercised, given prevailing market conditions. What portion of Kisu Company’s debt should be reported as part of current liabilities?
At December 31, 2020, Kisu Company’s liabilities include the following:A. P10 million of 10% notes are due on March 31, 2015. The financing agreement contains a covenant that requires Kisu to maintain current assets at least equal to 200% of its current liabilities. As of December 31, 2020, Kisu has breached this loan covenant. On February 10, 2021, before Kisu’s financial statements are authorized for issue, Kisu obtained a period of grace from Mayumi Bank until January 31, 2022, having convinced the bank that the company’s normal 3 to 1 ratio of current assets to current liabilities will be reestablished during 2021.B. P15 million of non-cancelable 12% bonds were issued at face value on September 30, 1989. The bonds mature on August 31, 2021. Kisu expects to have sufficient cash available to redeem the bonds at maturity.C. P20 million of 10% bonds were issued at face value on June 30, 1991. The bonds mature on June 30, 2020, but bondholders have the option to call or demand payment on the bonds on June 30, 2021. However, the call option is not expected to be exercised, given prevailing market conditions. What portion of Kisu Company’s debt should be reported as part of current liabilities?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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At December 31, 2020, Kisu Company’s liabilities include the following:A. P10 million of 10% notes are due on March 31, 2015. The financing agreement contains a covenant that requires Kisu to maintain current assets at least equal to 200% of its current liabilities. As of December 31, 2020, Kisu has breached this loan covenant. On February 10, 2021, before Kisu’s financial statements are authorized for issue, Kisu obtained a period of grace from Mayumi Bank until January 31, 2022, having convinced the bank that the company’s normal 3 to 1 ratio of current assets to current liabilities will be reestablished during 2021.B. P15 million of non-cancelable 12% bonds were issued at face value on September 30, 1989. The bonds mature on August 31, 2021. Kisu expects to have sufficient cash available to redeem the bonds at maturity.C. P20 million of 10% bonds were issued at face value on June 30, 1991. The bonds mature on June 30, 2020, but bondholders have the option to call or demand payment on the bonds on June 30, 2021. However, the call option is not expected to be exercised, given prevailing market conditions. What portion of Kisu Company’s debt should be reported as part of current liabilities?
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