Samson Corporation is preparing its December 31, 2020 statement of financial position. The following items may be reported as either
Samson Corporation is preparing its December 31, 2020 statement of financial position. The following items may be reported as either current or long-term liabilities:
1. On December 15, 2020, Samson declared a cash dividend of $1.50 per common share to shareholders of record on December 31. The dividend is payable on January 15, 2021. Samson has issued 1 million common shares.
2. Also, on December 31, Samson declared a 10% stock dividend to shareholders of record on January 15, 2021. The dividend will be distributed on January 31, 2021. Samson’s common shares have a market value of $54 per share.
3. At December 31, bonds payable of $100 million is outstanding. The bonds pay 7% interest every September 30 and mature in instalments of $25 million every September 30, beginning on September 30, 2021.
4. At December 31, 2019, customer advances were $12 million. During 2020, Samson collected $40 million in customer advances, and advances of $25 million were earned.
5. At December 31, 2020, Samson has an operating line of credit with a balance of $3.5 million outstanding. For several years now, Samson has successfully met all the conditions of this bank loan. If Samson defaults on any of the loan conditions in any way, the bank has the right to demand payment of the loan.
6. Samson is contingently liable for a bank loan in the amount of $10 million of its associated company, DD Ross Ltd. Samson has guaranteed the bank that, should DD Ross default on the loan or any outstanding interest payable, Samson will have to pay any and all outstanding balances. DD Ross is in an excellent financial position and shows no signs of defaulting on the terms of the bank loan.
a. For each item above, indicate the dollar amounts to be reported as a current liability and as a longterm liability, if any.
b. Referring to the definition of a liability (discussed in Chapter 2), explain the accounting treatment of item 4 above.
c. Digging Deeper Can you think of a reason why Samson would be willing to guarantee the bank loan of its associate, DD Ross Ltd.? What possible benefit could this burden bring Samson?Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Line of Credit
A line of credit (LOC) is a preset borrowing limit that can be used at any time. The borrower can take money out as needed until the limit is reached, and as money is repaid, it can be borrowed again in the case of an open line of credit. A LOC is...
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