At December 31, 2021, Newman Engineering's liabilities include the following: 1. $18 million of 6% bonds were issued for $18 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, 2022. However, the option to call is not expected to be exercised, given prevailing market conditions. 2. $22 million of 5% notes are due on May 31, 2022. A debt covenant requires Newman to maintain current assets at least equal to 183 % of its current liabilities. On December 31, 2021, Newman is in violation of this covenant. Newman obtained a waiver from National City Bank until June 2022, having convinced the bank that the company's normal 2 to 1 ratio of current assets to curre liabilities will be reestablished during the first half of 2022. 3. $15 million of 8% bonds were issued for $15 million on August 1, 1989. The bonds mature on July 31, 2022. Sufficient cash is expected to be available to retire the bonds at maturity.
At December 31, 2021, Newman Engineering's liabilities include the following: 1. $18 million of 6% bonds were issued for $18 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, 2022. However, the option to call is not expected to be exercised, given prevailing market conditions. 2. $22 million of 5% notes are due on May 31, 2022. A debt covenant requires Newman to maintain current assets at least equal to 183 % of its current liabilities. On December 31, 2021, Newman is in violation of this covenant. Newman obtained a waiver from National City Bank until June 2022, having convinced the bank that the company's normal 2 to 1 ratio of current assets to curre liabilities will be reestablished during the first half of 2022. 3. $15 million of 8% bonds were issued for $15 million on August 1, 1989. The bonds mature on July 31, 2022. Sufficient cash is expected to be available to retire the bonds at maturity.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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