In June 2021, the board of directors for Holtzman Enterprises Inc. authorized the sale of $10 million of corporate bonds. Michelle Collins, treasurer for Holtzman Enterprises Inc., is concerned about the date when the bonds are issued. The company really needs the cash, but she is worried that if the bonds are issued before the company’s year end (December 31, 2021), 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, 2022. They will have to report the issuance as a subsequent event, which requires only footnote disclosure. Collins predicts that with expected improved financial performance in 2021, the ratios should be better.
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.
