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

Publisher:OpenStax

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.
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
Which of the following statements is most correct? Why?* choices: a. The expected return on corporate bonds will generally exceed the yield to maturity. b. Firms that are in financial distress are forced to declare bankruptcy. c. All else equal, senior debt will generally have a lower yield to maturity than subordinated debt. d. Statements a and c are correct. e. None of the statements above is correct.
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?
Which one of the following events must occur before a firm can offer a liquidating dividend? A. Negative equity B.Insolvency declaration C. Asset sale D. Failed bond issue
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.
What are some situations other than immediate financial distressthat lead firms to file for bankruptcy?
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.
T or F - Zero-interest bonds sell at a significant discount that provides an investor with a total interest payoff at maturity. -Bond issuance costs must be reported separately as deferred charges and charged to expense over the life of the bond issue. -According to PAS 37, restructuring is a program that is planned and controlled by management, and materially changes either the scope of a business undertaken by an entity; or the manner in which that business is conducted -Provisions are presented in the statement of financial position as part of the line item “Trade and other payables.”
True/False Companies do not report changes in the fair value of available-for-sale debt securities as income until the security is sold.

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