Chapter 13 - Test Bank 185 - Because some of the debt is...

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124. In its 2013 annual report to shareholders, Border Airlines Inc. presented the following balance sheet information about its liabilities: In addition, Border presented the following among its note disclosures: Maturities of long-term debt (including sinking fund requirements) for the next five years are: 2014 - $421 million; 2015 - $212 million; 2016 - $273 million; 2017 - $1.0 billion; 2018 - $777 million. Required: Consider the appropriate classification of these long-term debt obligations. Assuming no more long-term debt will be issued, what are the implications of the information above for Border's liquidity and solvency risk in 2013 and the following years?
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Unformatted text preview: Because some of the debt is being reclassified from long-term to current as installment payments come due, the long-term debt will decline. The current portion will decline (all other things equal) in the year-end 2014 (due 2015) and 2015 (due 2016) balance sheets, but sharply increase in the year-end 2016 and 2017 balance sheets. The liquidity of the company will vary inversely to these changes. Also, assuming no new issuance of long-term debt, the balance will be cut nearly in half by the end of 2018, thereby improving the company's solvency (all other things equal). AACSB: Analytic AICPA FN: Measurement...
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