Reference no: EM131804018

Question - At December 31, 2011, Parker Petroleum's liabilities include the following:

1. $22 million of 10% notes are due on March 31, 2015. A debt covenant requires Parker to maintain current assets at least equal to 150% of its current liabilities. On December 31, 2011, Parker is in violation of this covenant. Parker obtained a waiver from City Corp Bank until June 2012, having convinced the bank that the company's normal 2 to 1 ratio of current assets to current liabilities will be reestablished during the first half of 2012.

2. $9 million of noncallable 13% bonds were issued for $9 million on September 30, 1978. The bonds mature on August 31, 2012. Sufficient cash is expected to be available to retire the bonds at maturity.

3. $15 million of 10% bonds were issued for $15 million on June 30, 1990. The bonds mature on June 30, 2022, but bondholders have the option of calling (demanding payment on) the bonds on June 30, 2012. However, the call option is not expected to be exercised, given prevailing market conditions.

Required: What portion of the debt can be excluded from classification as a current liability (that is, reported as a noncurrent liability)? Explain.