Fundamentals of Financial Accounting
5th Edition
ISBN: 9780078025914
Author: Fred Phillips Associate Professor, Robert Libby, Patricia Libby
Publisher: McGraw-Hill Education
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Chapter 11, Problem 5MC
To determine
To identify: Which of the given option is false regarding the advantages of equity and debt financing.
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Which is not a benefit of debt to the corporation?a. interest payments are tax deductibleb. when debt is used heavily, it increases stock valuec. In periods of inflation, debt is paid back with amounts that are worth less than the ones borrowed.d. compared to equity, debts have a lower cost of capitale. answer not given
Ques) Explain the contention that in the absence of the tax advantages of debt the use of gearing can increase the expected rate of return for shareholders, but not necessarily increase the value of their investment
Which of the following are true about debt and equity
interest payments are generally tax deductible but dividends are not
debt returns are limited to repayment of principal and interest
potential equity returns are infinite
liabilities and debt are the same thing
all public companies pay dividends
Chapter 11 Solutions
Fundamentals of Financial Accounting
Ch. 11 - Prob. 1QCh. 11 - Prob. 2QCh. 11 - Prob. 3QCh. 11 - Explain each of the following terms: (a)...Ch. 11 - What are the differences between common stock and...Ch. 11 - What is the distinction between par value and...Ch. 11 - What are the usual characteristics of preferred...Ch. 11 - What items are included in Accumulated Other...Ch. 11 - What is treasury stock? Why do corporations...Ch. 11 - How is treasury stock reported on the balance...
Ch. 11 - What are the two financial requirements to support...Ch. 11 - What is the difference between cumulative and...Ch. 11 - What is a stock dividend? How does a stock...Ch. 11 - What are the primary reasons for issuing a stock...Ch. 11 - Your company has been very profitable and expects...Ch. 11 - Identify and explain four important dates with...Ch. 11 - Prob. 17QCh. 11 - How do stock repurchases affect the EPS and ROE...Ch. 11 - What is one interpretation of a high P/E ratio?Ch. 11 - Prob. 20QCh. 11 - Which feature is not applicable to common stock...Ch. 11 - Which statement regarding treasury stock is false?...Ch. 11 - Which of the following statements about stock...Ch. 11 - Which of the following is ordered from the largest...Ch. 11 - Prob. 5MCCh. 11 - A journal entry is not recorded on what date? a....Ch. 11 - Prob. 7MCCh. 11 - Prob. 8MCCh. 11 - Prob. 9MCCh. 11 - Equity versus Debt Financing Indicate whether each...Ch. 11 - Computing the Number of Issued Shares Face 2 Face...Ch. 11 - Computing the Number of Unissued Shares The...Ch. 11 - Analyzing and Recording the Issuance of Common...Ch. 11 - Analyzing and Recording the Issuance of No-Par...Ch. 11 - Determining the Effects of Stock Issuance and...Ch. 11 - Determining the Amount of a Dividend Netpass...Ch. 11 - Recording Dividends On May 20, the board of...Ch. 11 - Determining the Impact of a Stock Dividend Sturdy...Ch. 11 - Determining the Impact of a Stock Split Complete...Ch. 11 - Determining the Amount of a Preferred Dividend...Ch. 11 - Determining the Amount of a Preferred Dividend...Ch. 11 - Calculating and Interpreting Earnings per Share...Ch. 11 - Inferring Financial Information Using the P/E...Ch. 11 - (Supplement 11A) Comparing Owner's Equity to...Ch. 11 - (Supplement 11B) Recording a Stock Dividend To...Ch. 11 - Computing Shares Outstanding The 2013 annual...Ch. 11 - Reporting Stockholders' Equity and Determining...Ch. 11 - Preparing the Stockholders' Equity Section of the...Ch. 11 - Reporting the Stockholders' Equity Section of the...Ch. 11 - Determining the Effects of the Issuance of Common...Ch. 11 - Recording and Reporting Stockholders' Equity...Ch. 11 - Finding Amounts Missing from the Stockholders'...Ch. 11 - Recording Treasury Stock Transactions and...Ch. 11 - Prob. 11.9ECh. 11 - Prob. 11.10ECh. 11 - Recording Dividends and Preparing a Statement of...Ch. 11 - Analyzing Stock Dividends On December 31, the...Ch. 11 - Prob. 11.13ECh. 11 - Comparing 100 percent Stock Dividend and 2-for-1...Ch. 11 - Journalizing Cash Dividends Bogscraft Company has...Ch. 11 - Preparing a Statement of Retained Earnings and...Ch. 11 - Determining the Effect of a Stock Repurchase on...Ch. 11 - (Supplement 11 A) Comparing Stockholders' Equity...Ch. 11 - Prob. 11.19ECh. 11 - Analyzing Accounting Equation Effects, Recording...Ch. 11 - Recording Stock Dividends Activision Blizzard,...Ch. 11 - Finding Missing Amounts At December 31, the...Ch. 11 - Prob. 11.4CPCh. 11 - Prob. 11.5CPCh. 11 - Analyzing Accounting Equation Effects, Recording...Ch. 11 - Recording Cash Dividends National Chocolate Corp....Ch. 11 - Finding Missing Amounts At December 31, the...Ch. 11 - Calculating Common and Preferred Cash Dividends...Ch. 11 - Prob. 11.5PACh. 11 - Analyzing Accounting Equation Effects, Recording...Ch. 11 - Prob. 11.2PBCh. 11 - Prob. 11.3PBCh. 11 - Prob. 11.4PBCh. 11 - Prob. 11.5PBCh. 11 - COMPREHENSIVE PROBLEM Financial Reporting of...Ch. 11 - Recording Daily and Adjusting Entries, and...Ch. 11 - Finding Financial Information Refer to the...Ch. 11 - Prob. 11.2SDCCh. 11 - Prob. 11.4SDCCh. 11 - Prob. 11.5SDCCh. 11 - Critical Thinking: Making a Decision asan Investor...Ch. 11 - CC11 Accounting for Equity Financing Nicole has...
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Similar questions
- One reason a company may choose to issue additional debt instead of equity when raising capital is that __________.debt interest payments are tax-deductiblearrow_forwardThe difference between equity financing and debt financing is that A. equity financing involves borrowing money. B. equity financing involves selling part of the company. C. debt financing involves selling part of the company. D. debt financing means the company has no debt.arrow_forwardWhy does issuing debt result in an income tax advantage when compared to issuing equity?arrow_forward
- FASB allows debt to be shown at its fair market value. Consequently, if a company in financial difficulty uses the fair value option, it would report a gain because investors no longer want to purchase its debt. Do you think that this is appropriate?arrow_forwardwhich of the following is not an advantage of equity rather than debt financing a. lower cost b. lower risk of insolvency c. lower funding risks d. no legal liability to pay dividends e. no requirement to repay capital.arrow_forwardThere are two significant benefits of obtaining a loan over investing capital: Select one: a. banks are dependable providers of venture funding, and interest charges are tax deductible b. the money does not have to be repaid, and lenders usually take an active interest in their creditors C. no ownership of the company is given up or surrendered, and interest payments are tax deductible d. the investment does not have to be repaid, and no ownership of the company is surrendered O O O Oarrow_forward
- 3. Which of the following securities do not provide tax advantage to the company? A. Bond B. Equity Shares C. Bank Loan D. Debenturesarrow_forwardThe tax shield provides one of the benefits for obtaining debt financial capital True Falsearrow_forwardHow would the transactions be reconciled if the bad debt allowance is changed to a write-off but the corporation is able to retrieve the funds?arrow_forward
- Under Modigliani and Miller's assumption of perfect capital markets, which of the following is NOT CORRECT? A) The proper WACC equation under perfect capital markets is the "pre-tax" WACC B) Taxes are irrelevant C) Reducing the debt ratio can cause the cost of debt and the cost of equity to decline, even as the WACC stays the same. D) The WACC does not change as the weights of debt and equity change E) Bankruptcy costs reduce the amount bondholders receive when bankruptcy occursarrow_forwardCritique this statement: “The use of debt financing lowers the net income of the firm, and hence debt financing should be used only as a last resort.”arrow_forwardThe after-tax cost of debt is generally cheaper than other sources of financing. True Falsearrow_forward
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