Regarding the use of bonds or preferred stock for raising equity, which of the following statements is true regarding the potential of triggeringbankruptcy?Oa. Non-payment of bond interest can trigger a company into bankruptcy.Ob. Non-payment of preferred dividends can trigger a company into bankruptcy.c. Bankruptcy cannot be triggered until there is non-payment of both bond interest and preferred dividends.d. Bankruptcy cannot be triggered by either non-payment of bond interest or preferred dividends.

a. Non-payment of bond interest can trigger a company into bankruptcy.This option is Correct: Bonds…

Answered: Regarding the use of bonds or preferred…

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

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Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 20MC: The difference between equity financing and debt financing is that A. equity financing involves...

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Which of the following statements are true about unsecured bonds?I. Income bonds require interest payments only if earned and non-payment of interest does not lead to bankruptcy. Usually issued during the reorganization of a firm facing financial difficulties. II. Debentures are unsecured long-term debt and backed only by the reputation and financial stability of the corporation. Because of this, the earning ability of the issuing corporation is of great concern to the bondholder.III. Claims of bondholders of subordinated debentures are honored only after the claims of secured debt and unsubordinated debentures have been satisfied. IV. Income bonds have longer maturity and unpaid interest is allowed to accumulate for some period of time and must be paid prior to the payment of any dividends to stockholders.
52. Which of the following statements is incorrect?a. Firms will often voluntarily enter bankruptcy before they are forcedinto bankruptcy by their creditors.b. An indenture is a bond that is less risky than a subordinateddebenture.c. When a firm files for Chapter 11 bankruptcy, it may attempt torestructure its existing debt by changing (subject to creditorapproval) the interest payments, maturity, and/or principal amount.d. All else equal, mortgage bonds are less risky than debentures becausemortgage bonds provide investors with a lien (that is, a claim)against specific property.e. A company’s bond rating is affected by financial performance andprovisions in the bond contract.
Briefly describe bankruptcy law. If a firm wereto default on its bonds, would the company beliquidated immediately? Would the bondholdersbe assured of receiving all of their promisedpayments?
A business declares bankruptcy causing it to default on its bond. Investors call this characteristic O credit risk. O interest risk O market risk private risk
Why would the company redeem the bonds prior to the maturity date if they were going to recognize a loss? Can you think of an example of such a decision we might face in our personal lives?
5. Which of the following statements is FALSE? a. In the extreme case, the debt holders take legal ownership of the firm's assets through a process called bankruptcy. b. Equity holders expect to receive dividends and the firm is legally obligated to pay them. c. A firm that fails to make the required interest or principal payments on the debt is in default. d. After a firm defaults, debt holders are given certain rights to the assets of the firm.
Why would a company wish to reduce its bond indebtednessbefore its bonds reach maturity? Indicate how thiscan be done and the correct accounting treatment forsuch a transaction.
Please answer “True” or “False” to the following statements. Only long-term debt is first in line to be paid on the liquidation or sale of a company. Convertible debt can never have an impact on the ownership percentage of a company. Factoring is a method for companies with high risk accounts receivable to insure the receipt of at least some of the cash owed to them. Leasing is not considered a debt for balance sheet and liquidity purposes. A company with a liquidity covenant of $500,000 must maintain that amount of available cash at all times.
Which statement is FALSE regarding the difference between shareholders and bondholders? * Bondholders are mere creditors of the company to whom the company has to repay a certain amount. Shareholders are the real owners in the company. Shareholders have more rights (voting rights, priority at times of bankruptcy, payment preferences) than bondholders. Shareholders are more exposed to risks than bondholders.
A. Provide brief explanations/definitions for each of the following:Tracking error, Asset Swaps, Liquidity Theory of the Term Structure, Contraction Risk. B. Why would a corporation elect to raise funds via a securitization rather than a corporate bond?
Why would a company wish to reduce its bond indebtedness before its bonds reach maturity? Indicate how this can be done and the correct accounting treatment for such a t
True or False. 1. If the amount of the bond payable is fully paid, together with the interest, the liability of the issuing entity ceases to exist. 2. Debt equity is raising capital through the creation of a liability. 3. In equity financing, there is debtor and creditor relationship. 4.

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