Question

The following items were taken from the accounting records of Minnesota Satellite Telephone
Corporation (MinnSat) for the year ended December 31, 2011 (dollar amounts are in thousands):
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,600
Accrued expenses payable (other than interest) . . . . . . . . . . . . . . . . . . . . . . . . . 11,347
6 3⁄4% Bonds payable, due Feb. 1, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
81⁄2% Bonds payable, due June 1, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000
Discount on bonds payable (81⁄2% bonds of 2012) . . . . . . . . . . . . . . . . . . . . . . . 260
11% Bonds payable, due June 1, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000
Premium on bonds payable (11% bonds of 2021) . . . . . . . . . . . . . . . . . . . . . . . . 1,700
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,333
Bond interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,000
Other interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,000
Notes payable (short-term) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,000
Lease obligations—capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,600
Pension obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,000
Unfunded obligations for postretirement benefits other than pensions . . . . . . . . 72,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,000
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,900
Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,300
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280,800
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,700
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,093,500
Other Information
1. The 6¾ percent bonds due in February 2012 will be refinanced in January 2012 through the issuance of $150,000 in 9 percent, 20-year bonds payable.
2. The 8½ percent bonds due June 1, 2012, will be repaid entirely from a bond sinking fund.
3. MinnSat is committed to total lease payments of $14,400 in 2012. Of this amount, $7,479 is applicable to operating leases, and $6,921 to capital leases. Payments on capital leases will be applied as follows: $2,300 to interest expense and $4,621 to reduction in the capitalized lease payment obligation.
4. MinnSat’s pension plan is fully funded with an independent trustee.
5. The obligation for postretirement benefits other than pensions consists of a commitment to maintain health insurance for retired workers. During 2012, MinnSat will fund $18,000 of this obligation.
6. The $17,300 in income tax payable relates to income taxes levied in 2011 and must be paid on or before March 15, 2012. No portion of the deferred tax liability is regarded as a current liability.
Instructions
a. Using this information, prepare the current liabilities and long-term liabilities sections of a classified balance sheet as of December 31, 2011. (Within each classification, items may be listed in any order.)
b. Explain briefly how the information in each of the six numbered paragraphs affected your presentation of the company’s liabilities.
c. Compute as of December 31, 2011, the company’s (1) debt ratio and (2) interest coverage ratio.
d. Solely on the basis of information stated in this problem, indicate whether this company appears to be an outstanding, medium, or poor long-term credit risk. State specific reasons for your conclusion.



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