Which of the following is not an example of a negative covenant provision? Multiple Choice Limits the use of the loan to an agreed-upon purpose. Limits on capital expenditures. • Restricts the payment of cash dividends. Limits on the borrower's total indebtedness. Island Corporation owes Mutual Bank a 10% note payable for $100,000 plus $8,000 accrued interest. On October 1, 20X1. Island and Mutual Bank execute an agreement whereby Island will pay Mutual $128,000 on the due date of the note on October 1, 20X3. What effective interest rate will Island use for the restructured note? Multiple Choice 8.7% 10.0% • 13.1% • 8.9%

Which of the following is not an example of a negative covenant provision? Multiple Choice Limits the use of the loan to an agreed-upon purpose. Limits on capital expenditures. • Restricts the payment of cash dividends. Limits on the borrower's total indebtedness. Island Corporation owes Mutual Bank a 10% note payable for $100,000 plus $8,000 accrued interest. On October 1, 20X1. Island and Mutual Bank execute an agreement whereby Island will pay Mutual $128,000 on the due date of the note on October 1, 20X3. What effective interest rate will Island use for the restructured note? Multiple Choice 8.7% 10.0% • 13.1% • 8.9%

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter9: Long-term Liabilities

Section: Chapter Questions

Problem 101.1C: Debtholders receive note contracts, one for each note, that describe the payments promised by the...

See similar textbooks

Similar questions

On January 1, 20x1, an entity obtains an 11%, P5,000,000 bank loan. The bank charges the entity an 8.74% nonrefundable loan origination fee. The principal on the loan matures on December 31, 20x4 but interest is due annually every December 31. Requirements: Compute for the initial carrying amount of the loan. Compute for the effective interest rate on the loan. Compute for the carrying amount of the loan on December 31 20x1.
Debtholders receive note contracts, one for each note, that describe the payments promised by the issuer of the debt. In addition, the issuing corporation frequently enters a supplementary agreement, callcd a note indenture, with a trustee who represents the debtholders. The provisions or covenants of the indenture may place restrictions on the issuer for the benefit of the debtholders. For example, an indenture may require that the issuers debt to equity ratio never rise above a specified level or that periodic payments be made to the trustee who administers a sinking fund to provide for the retirement of debt. Consider Roswell Manufacturings debt indenture, which requires that Roswells debt to equity ratio never exceed 2:1. If Roswell violates this requirement, the debt indenture specifies very costly penalties, and if the violation continues, the entire debt issue must be retired at a disadvantageous price and refinanced. In recent years, Roswells ratio has averaged about 1.5:1 ($15 million in total liabilities and $10 million in total stockholders equity). However, Roswell has an opportunity to purchase one of its major competitors, Ashland Products. The acquisition will require $4.5 million in additional liabilities, but it will double Roswells net income. Roswell does not believe that a stock issue is feasible in the current environment. The Financial Accounting Standards Board issued a new standard concerning accounting for post employment benefits, which is strongly supported by the Securities and Exchange Commission. Implementation of the new standard will add about S2 million to Roswells long-term liabilities. Roswells CEO. Martha Cooper, has written a strong letter of objection to the FASB. The FASB received similar letters from over 300 companies. Required; 1. Write a paragraph presenting an analysis of the impact of the new standard on Roswell Manufacturing.
Debtholders receive note contracts, one for each note, that describe the payments promised by the issuer of the debt. In addition, the issuing corporation frequently enters a supplementary agreement, called a note indenture, with a trustee who represents the debtholders. The provisions or covenants of the indenture may place restrictions on the issuer for the benefit of the debtholders. For example, an indenture may require that the issuers debt to equity ratio never rise above a specified level or that periodic payments be made to the trustee who administers a sinking fund to provide for the retirement of debt. Consider Roswell Manufacturings debt indenture, which requires that Roswells debt to equity ratio never exceed 2:1. If Roswell violates this requirement, the debt indenture specifies very costly penalties, and if the violation continues, the entire debt issue must be retired at a disadvantageous price and refinanced. In recent years, Roswells ratio has averaged about 1.5:1 ($15 million in total liabilities and $10 million in total stockholders equity). However, Roswell has an opportunity to purchase one of its major competitors, Ashland Products. The acquisition will require $4.5 million in additional liabilities, but it will double Roswells net income. Roswell does not believe that a stock issue is feasible in the current environment. The Financial Accounting Standards Board issued a new standard concerning accounting for post employment benefits, which is strongly supported by the Securities and Exchange Commission. Implementation of the new standard will add about S2 million to Roswells long-term liabilities. Roswells CEO. Martha Cooper, has written a strong letter of objection to the FASB. The FASB received similar letters from over 300 companies. Required; 2. If you were a member of the FASB and met Martha Cooper at a professional meeting, how would you respond to her objection?
12, please read the question carefully and follow the instructions. thanks
The following information are provided by Narra Company on its fiscal year ending October 31, 2020.• P4,000,000 Loans Payable, with P1,000,000 payable semiannually every March 31 and September 30. Related covenants were breached but the creditor signed a waiver on October 29, 2020 as to the loan being payable on demand. As such, the loan will continue to be paid in the original manner.• P8,000,000 Bonds Payable, maturing on November 30, 2021.• P2,000,000 3-Year Notes Payable, maturing on January 21, 2021. the debtor has the unconditional right to defer settlement of the note by nine months. How much is the total current liabilities and non-current liabilities?
1. Journalize all entries for Symphony Bank related to the note for 2018 and 2019. 2. Which party has a a. note receivable? b. note payable? c. interest revenue? d. interest expense? 3. Suppose that Kara Perry defaulted on the note. What entry would Symphony record for the dishonored note?
On January 1, 2022, Cornet Inc. loaned $187,825 to Pact Co. A zero-interest-bearing note (face amount, $250,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2024. The prevailing rate of interest for a loan of this type is 9%. What amount of interest income should Cornet recognize in 2022? $18,783 $16,904 $25,000 $22,500
On January 1 2020, Machete Company sold land with a carrying amount of P1 500 000 in exchange for a 9 month 10% note with face value of P2 000 000. The 10% rate properly reflects the time value of money for this type of note. On April 1 2020 the entity discounted the note with recourse. The bank discount rate is 12%. The discounting transaction is accounted for as a secured borrowing. On October 1 2020, the make dishonored the note receivable. The entity paid the bank the maturity value of the note plus the protest fee of P10 000. On December 31 2020, the entity collected the dishonored note receivable in full plus 12% annual interest on the total amount due. Required: Prepare journal entries to record the transaction.
continue to collect the assigned accounts receivable. On December 1, 2020, Solvent Company assigned specific accounts receivable totaling P5,000,000 as collateral on a P4,000,000 12% note from a certain bank. The entity will Problem 8-14 (IAA) addition to the interest on the note, the bank also charged 506 finance fee deducted in advance on the asigned accounts. The December collections of assigned accounts receivable amounted to P2,000,000 less cash discount of P200,000. On December 31, 2020, the entity remitted the collections to the bank in payment for the interest accrued on December 31, 2020 and the note payable. The entity accepted sales returns of P100,000 on the assigned accounts and wrote off assigned accounts of P300,000. 1. What amount of cash was received from the assignment of accounts receivable on December 1, 2020? a. 4,000,000 b. 3,800,000 c. 4,750,000 d. 3,750,000 2. What is the carrying amount of note payable on December 31, 2020? a. 1,840,000 b. 2,140,000 c.…
Sagar
(b) On April 1, 2025, Marigold Company assigns $505,300 of its accounts receivable to the Third National Bank as collateral for a $327,200 loan due July 1, 2025. The assignment agreement calls for Marigold to continue to collect the receivables. Third National Bank assesses a finance charge of 4% of the accounts receivable, and interest on the loan is 10% (a realistic rate of interest for a note of this type). (a) Your answer is correct. Prepare the April 1, 2025, journal entry for Marigold Company. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries.) Date Account Titles and Explanation Apr. 1, Cash 2025 Interest Expense Notes Payable eTextbook and Media List of Accounts Debit 306988 20212 Credit 327200 Attempts: 1 of 2 used Prepare the journal entry for Marigold's collection of $378,200 of the…
5. Packwood, Inc. factors $250,000 of its accounts receivable to M&B Finance with recourse. M&B charges a fee of 1% and withholds 10% of the face amount of the receivables to cover possible uncollectible accounts and sales returns. The bank deducts the fee from the cash given to Packwood at the outset of the arrangement. Packwood estimates the fair value of the recourse obligation is equal to $6,000. Packwood estimates the fair value of the 10% of the face amount of receivables equals $22,500. Packwood does not retain control over the factored receivables. Prepare any journal entries Packwood, Inc. would make to record the factoring.