In the Schweser notes for Reading #22, the example for Thunderbird Corporation shows them having a significantly higher level for current portion of long-term debt (p. 190) than they have for total long-term debt (p. 189).
How is this possible? Is this an error with the example, or am I missing something?
It looks like an error but I think it is not relevant for practice.
This can happen, but I doubt vary often. Let’s say that a company has two Bond Issues outstanding:
- $250M maturing 03/31/2016
- $150M maturing 03/31/2020
The 12/31/2015 Balance Sheet would show:
- Current portion of LTD $250
- LTD $150
The key is remembering that the Long-term debt does bot include the short-term portion.
I was thinking about such case but same balance between short and long term position appears
in each sequential fiscal year in this example.
Without looking at the example, they could just be doing it for practice and not exactly a “true to life” example. I have seen many examples where they stray from what you would normally see to try and prove a point to you. In real life you would be able to look at the notes to the FS to sanity check any sort of number like that anyway.
I suspect that it’s more likely that the question writer fouled up, and the editors didn’t catch it.
It happens all to often, alas.
We could only hope that all exam question writers could provide us with such clear and concise information as one S2000magician. Has anyone at Schweser/Wiley/etc ever contacted you about doing work for them?
He’s already done work for both of them, and Fitch.
What about sinking-fund instruments? They may amortize a great portion of the debt in the short term.
With this particular example, I’m thinking it was just an error. Thanks for the input everyone!
Maybe big portion of the long term bond mature in the current year.Like
Long term bond 100X (for example mature within 2 year)
Short term 120X (including current portion of long term)
120X=70X Notes payable+40X long term debt mature in the current year which is the notional ammount+10X interest payment.