Final answer:
The claim that the currently maturing portion of a serial bond should not be classified as a current liability when it will be paid from a sinking fund is false.
Bonds are classified based on their maturity period rather than the payment source, and a maturing bond due within a year is a current liability.
Step-by-step explanation:
The statement that the currently maturing portion of a serial bond should not be classified as a current liability if it will be paid out of a long-term asset such as a sinking fund is false.
Accounting standards typically require that any portion of a bond that is due within one year be classified as a current liability, regardless of the source of the payment.
Current liabilities are obligations the company expects to pay within the next year, and having assets set aside in a sinking fund does not change the nature of the obligation.
When considering the risk of the bond, a bond without risk would initially sell at its face value and pay interest accordingly.
If prevailing interest rates increase, the present value of the bond would generally decrease to make it an attractive investment compared to newer issues with higher rates. Similarly, when the federal government issues Treasury notes and bonds, they are considered very safe investments due to the backing of the government’s creditworthiness.