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Business Model and Strategic Plan Part I: Conceptualizing a New Product or Service Division of an Existing Business

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•Ch. 10: Questions 1, 7, 8, & 19;
Question 1: Georgia Lazenby believes a current liability is a debt that can be expected to be paid in one year. Is Georgia correct? Explain.

* That is correct. Otherwise (if over a year) it would be a long term liability.

Question 7: (a) What are long-term liabilities? Give two examples.

* Debts that must be paid for a period in excess of a year. Long term note payable; mortgage

(b) What is a bond?

* A bond is a form of debt

Question 8: Contrast these types of bonds:

(a) Secured and unsecured.

* A secured bond has a claim on something (revenue or property) unsecured has no claim and is just the credit of the person repaying.

(b) Convertible and callable.

* Convertible means that the bond can be exchanged for common stock. * Callable means it can be taken by the person issuing it at certain times for a certain price. If the holder can hold it to maturity is not callable.

Question 19: Valentin Zukovsky says that liquidity and solvency are the same thing. Is he correct? If not, how do they differ?

* They are different - Liquidity and solvency are dashboard signs of your financial health. The former, also known as cash flow, measures your ability to pay monthly bills and meet emergencies that require cash. Solvency refers to net worth, which is how much you have left to call your own if you pay off your debts.

Brief Exercise BE10-1;
BE10-1 Kananga Company has these obligations at December 31: (a) a note payable for $100,000 due in 2 years, (b) a 10-year mortgage payable of $200,000 payable in ten $20,000 annual payments, (c) interest payable of $15,000 on the mortgage and (d) accounts payable of $60,000. For each obligation, indicate whether it should be classified as a current liability.

a. A note payable for $100,000 due in 2 years: * Noncurrent…...

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