Cash account (millions of dollars)Projected sales (millions of dollars)Stock price per share(monthly average)Capital structure (equity/debt ratioin percent)Liquidity ratio (current assets/current liabilities)Earnings before interest and taxes(EBIT; in millions of dollars)Return on assets (ROA; percent)Sales revenue (millions of dollars)CurrentMonth$33$298$6.6032.8%1.10x$153.32%$290OneMonthAgo$57$295$6.5033.9%1.23x$143.25%$289TwoThreeMonths MonthsAgoAgo$51$294$6.4034.6%1.35x$132.98%$290$44$291$6.2534.9%1.39x$113.13%$289FourMonthsAgo$43$288$6.5035.7%1.25x$133.11%$287Butell has announced within the past 30 days that it is switching to new methodsfor calculating depreciation of its fixed assets and for valuing inventories. The firm'sboard of directors is planning to discuss at its next meeting a proposal to reduce stockdividends in the coming year.6. Identify which of the following loan covenants are affirmative and which are negativecovenants:a. Nige Trading Corporation must pay no dividends to its shareholders above $3 pershare without express lender approval.b. HoneySmith Company pledges to fully insure its production line equipmentagainst loss due to fire, theft, or adverse weather.c. Soft-Tech Industries cannot take on new debt without notifying its principal lend-ing institution first.d. PennCost Manufacturing must file comprehensive financial statements eachmonth with its principal bank.e. Dolbe King Company must secure lender approval prior to increasing its stock offixed assets.f. Crestwin Service Industries must keep a minimum current (liquidity) ratio of 1.5xunder the terms of its loan agreement.g. Dew Dairy Products is considering approaching Selwin Farm Transport Companyabout a possible merger but must first receive lender approval.

Covenants are legally enforceable rules that parties to the contract agree on at the time of…

Answered: 6. Identify which of the following loan…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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17 What is an REO? A O 'Real estate owned' by the lender after a foreclosure where the property failed to sell at auction. A period of time called a 'Redemption Extension to Owner' in which the owner has a chance to buy back property after it is auctioned off. A 'Registered Equity Offering' consisting of a portfolio of loans offered for sale as mortgage-backed securities on the secondary mortgage market. DO A 'Regulatory Enforcement Order' in which a lender files a lawsuit against the borrower to force the sale of the property.
Which of the following choices best describes reasonable conclusions that you might make about the two companies’ ability to pay their current and long-term obligations? A. Company A’s current ratio of 4.0 indicates it is more liquid than Company B, whose current ratio is only 1.2, and Company A is also more solvent, as indicated by a debt-to-equity ratio of 200 percent compared with Company B’s debt-to-equity ratio of only 30 percent. B. Company A’s current ratio of 0.25 indicates it is less liquid than Company B, whose current ratio is 0.83, and Company A is also less solvent, as indicated by a debt-to-equity ratio of 200 percent compared with Company B’s debt-to-equity ratio of only 30 percent. C. Company A’s current ratio of 4.0 indicates it is more liquid than Company B, whose current ratio is only 1.2, but Company B is more solvent, as indicated by its lower debt-to- equity ratio.
3. a. List and describe three types of deferred credits? b. Do they meet the definition of a liability? Of short or long term? c. Why do some accountants not consider them to be a liability? d. Do deferred credits affect liquidity? 4. List and discuss four reasons a company would prefer to issue debt rather than equity securities. 5. When and why should liabilities for each of the following items be recorded on the books of an ordinary business corporation? a. Purchase of goods on account. b. Officers' salaries c. Dividends d. Interest e. Loss contingencies
Ross’s Lipstick Company’s long-term debt agreements make certain demands on the business. For example, Ross may not purchase treasury stock in excess of the balance of retained earnings. Also, long-term debt may not exceed stockholders’ equity, and the current ratio may not fall below 1.50. If Ross fails to meet any of these requirements, the company’s lenders have the authority to take over management of the company. Changes in consumer demand have made it hard for Ross to attract customers Current liabilities have mounted faster than current assets, causing the current ratio to fall to 1.47. Before releasing financial statements, Ross’s management is scrambling to improve the current ratio. The controller points out that an investment can be classified as either long-term or short-term, depending on management’s intention. By deciding to convert an investment to cash within one year, Ross can classify the investment as short-term-a current asset. On the controller’s recommendation,…
Which of the following statements are true? I. Financial leasing can still provide off-balance sheet financing. II. The cost of capital for a financial lease is the interest rate the company would pay on a bank loan. III. An equivalent loan's principal plus after-tax interest payments exactly match the after-tax cash flows of the lease. IV. It makes sense for firms that pay no taxes to lease from firms that do. Select one: O a. II, III and IV only O b. I. Il and II. O. Il and IIl only O d. I, II, II, and IV
Which of the following statements is NOT true? A. Debt contracts tend to impose more restrictions on the actions of the borrower than the lender B. Larger corporations have easier access to the securities market C. The financial sector is one of the least regulated industries in the US economy D. Collateral is used to secure debt contracts
am. 167.
3. John is president and sole shareholder of Photo, Inc. Photo, Inc. wishes to borrow money, but to do so, the bank requires John to orally guarantee to repay the loan if Photo, Inc. cannot. Examine the validity of John’s oral guarantee.
eceivables arise due to a deferred sale, and companies are often unable to collect all their debts, which means that part of those debts may become non-existent or there is doubt about the possibility of collection. 1- What is the difference between bad debts and doubtful debts? 2- Draft an example (supported by numbers) to explain the method of doubtful debts in dealing with bad debts, provided that the explanation includes accounting restrictions and the impact on the financial statements? 3- Explain why the use of the direct method (bad debt method) conflicts with generally accepted accounting principles? 4- One of the methods for estimating doubtful debts is the deferred sales method, the receivables balance method, and the receivables aging method. Required: Formulate an example (enhanced by numbers) to explain the method of aging receivables in estimating doubtful debts, taking into account the following: (1) the number of clients should be 10 clients, (2) the percentages…
None
All of the following are common loan restrictions except? * restrictions on dividends or other payments to owners and/or investors limits on total equity limits on total debt restrictions on additional capital expenditures

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