The following items were taken from the accounting records of Delaware Utility Company for the year ended December 31, 2011 (dollar amounts are in thousands):

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,000

Accrued expenses payable (other than interest) . . . . . . . . . . . . . . . . . . . . . . . . . 7,200

10% Bonds payable, due April 1, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000

8% Bonds payable, due October 1, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000

Unamortized bond discount (8% bonds of 2012) . . . . . . . . . . . . . . . . . . . . . . . . . 270

12% Bonds payable, due April 1, 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000

Unamortized bond premium (12% bonds of 2024) . . . . . . . . . . . . . . . . . . . . . . . 2,000

Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,650

Bond interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,000

Other interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000

Notes payable (short-term) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000

Lease obligations—capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000

Pension obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,000

Unfunded obligations for postretirement benefits other than pensions . . . . . . . . 60,000

Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,000

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,000

Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341,250

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210,000

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,203,950

Other Information

1. The 10 percent bonds due in April 2012 will be refinanced in March 2012 through the issuance of $125,000 in 9 percent, 20-year bonds payable.

2. The 8 percent bonds due October 1, 2012, will be repaid entirely from a bond sinking fund.

3. Delaware Utility is committed to total lease payments of $11,000 in 2012. Of this amount,

$6,000 is applicable to operating leases, and $5,000 to capital leases. Payments on capital leases will be applied as follows: $2,000 to interest expense and $3,000 to reduction in the capitalized lease payment obligation.

4. Delaware Utility’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, Delaware Utility will fund $16,000 of this obligation.

6. The $8,000 in income taxes 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.