Liabilities

a. When you borrow money from a bank to purchase a car, the loan agreement gives the bank the right to repossess the car if you fail to make the required payments. What does it mean when a company issues secured debt to acquire operating assets? How does the claim of a secured bondholder differ from that of someone who purchases a debenture?

b. You have been contacted by one of your customers, Bark Company, and asked to increase its line of credit with your company. Bark forwarded the following information to you:

Would you recommend extending additional credit to Bark Company? Explain your answer.

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Long-term debt Total sales Accounts payable Year 2000 $1.500.000 Year 1999 $1,200,000 300,000 500,000 700,000 1,000,000 Owners' equity Total assets 300,000 300,000 2.000.000 1,100,000