In June 2024, the board of directors for Holtzman Enterprises Inc. authorized the sale of $10 million
Question:
In June 2024, the board of directors for Holtzman Enterprises Inc. authorized the sale of $10 million in corporate bonds. Michelle Collins, treasurer for Holtzman Enterprises, is concerned about the issue date of the bonds. The company needs the cash, but Michelle is worried that if the bonds are issued before the company’s year end (December 31, 2024), the additional liability will have an adverse effect on several important ratios. In July, she explains to company president Kenneth Holtzman that if they delay issuing the bonds until after December 31, the bonds will not affect the ratios until December 31, 2025. The company would have to report the issuance as a subsequent event, which requires only a footnote disclosure. Michelle predicts that with expected improved financial performance in 2024, the 2025 ratios should improve.
Instructions
Adopt the role of Michelle Collins and discuss any issues relating to the timing of the planned bond issuance. The company’s shares trade on the local stock exchange.
Step by Step Answer:
Intermediate Accounting Volume 2
ISBN: 9781119740445
13th Canadian Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy