Cornerstones of Financial Accounting - With CengageNow
4th Edition
ISBN: 9781337760959
Author: Rich
Publisher: CENGAGE L
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Chapter 9, Problem 16MCQ
To determine
Concept introduction:
Bonds:
Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date. Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.
To choose:
The correct Statement about why bonds are popular source of financing.
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16.
Bonds are a popular source of financing because
a.financial analysts tend to downgrade a company that has raised large amounts of cash by frequent issues of shares.
b.a company having cash flow problems can postpone payment of interest to bondholders.
c.the bondholders can always convert their bonds into shares if they choose.
d.bond interest expense is deductible for tax purposes, while dividends paid on shares are not.
A company with a poor credit rating needs to raise funds for expansion, but the bank will not give them a loan. In addition, their common stock prices are already low, so they do not want to issue more shares of common stock. What would be the best way for this company to raise funds for the expansion?
Sell secured bonds.
Sell callable bonds.
Sell convertible bonds.
Sell unsecured bonds.
Identify the following as either an advantage or a disadvantage of bond financing for a company.
a. Bond interest payments reduce total taxes paid.
b. Bonds do not affect owner control.
c. A company earns a lower return with borrowed funds than it pays in interest.
d. A company earns a higher return with borrowed funds than it pays in interest.
e. Bonds require payment of periodic interest.
f. Interest on bonds is tax deductible.
Chapter 9 Solutions
Cornerstones of Financial Accounting - With CengageNow
Ch. 9 - Prob. 1DQCh. 9 - What is the difference between a bond and a note?...Ch. 9 - What does the face (or Par) value of a bond...Ch. 9 - Prob. 4DQCh. 9 - What is the stated or coupon rate of a bond?Ch. 9 - Prob. 6DQCh. 9 - How does a secured bond differ from an unsecured...Ch. 9 - Prob. 8DQCh. 9 - Prob. 9DQCh. 9 - Prob. 10DQ
Ch. 9 - Prob. 11DQCh. 9 - Prob. 12DQCh. 9 - Prob. 13DQCh. 9 - Prob. 14DQCh. 9 - Prob. 15DQCh. 9 - Prob. 16DQCh. 9 - Prob. 17DQCh. 9 - Prob. 18DQCh. 9 - Prob. 19DQCh. 9 - Prob. 20DQCh. 9 - Prob. 21DQCh. 9 - Prob. 22DQCh. 9 - Which of the following statements regarding bonds...Ch. 9 - Prob. 2MCQCh. 9 - If bonds are issued at 101.25, this means that a...Ch. 9 - What best describes the discount on bonds payable...Ch. 9 - The premium on bonds payable account is shown on...Ch. 9 - When bonds are issued by a company, the accounting...Ch. 9 - Prob. 7MCQCh. 9 - Bonds in the amount of $100,000 with a life of 10...Ch. 9 - Prob. 9MCQCh. 9 - Prob. 10MCQCh. 9 - Prob. 11MCQCh. 9 - Prob. 12MCQCh. 9 - Prob. 13MCQCh. 9 - Prob. 14MCQCh. 9 - Prob. 15MCQCh. 9 - Prob. 16MCQCh. 9 - Which of the following statements regarding the...Ch. 9 - Willow Corporations balance sheet showed the...Ch. 9 - Prob. 19MCQCh. 9 - McLaughlin Corporations balance sheet showed the...Ch. 9 - (Appendix 9A) The bond issue price is determined...Ch. 9 - Cornerstone Exercise 9-22 Reporting Long-Term Debt...Ch. 9 - Cornerstone Exercise 9-23 Issuance of Long-Term...Ch. 9 - Cornerstone Exercise 9-24 Issuance of Long-Term...Ch. 9 - Prob. 25CECh. 9 - Cornerstone Exercise 9-26 Debt Issued at Par On...Ch. 9 - Prob. 27CECh. 9 - Cornerstone ExerciseDebt Issued at a Premium...Ch. 9 - Cornerstone Exercise 9-29 Debt issued at a Premium...Ch. 9 - Cornerstone Exercise Debt Issued at a Premium...Ch. 9 - Prob. 31CECh. 9 - Cornerstone Exercise Bonds Issued at a Discount...Ch. 9 - Prob. 33CECh. 9 - Prob. 34CECh. 9 - Prob. 35CECh. 9 - Prob. 36CECh. 9 - Prob. 37CECh. 9 - Prob. 38CECh. 9 - Cornerstone Exercise Ratio Analysis Watterson...Ch. 9 - Cornerstone Exercise Ratio Analysis Blue...Ch. 9 - Cornerstone Exercise Ratio Analysis Red...Ch. 9 - Prob. 42CECh. 9 - Cornerstone Exercise (Appendix 9A) Bond Issue...Ch. 9 - Prob. 44BECh. 9 - Brief Exercise Issuance of Long-Term Debt Natalie...Ch. 9 - Prob. 46BECh. 9 - Prob. 47BECh. 9 - Brief Exercise Debt Issued at Par On January 1,...Ch. 9 - Prob. 49BECh. 9 - Prob. 50BECh. 9 - Brief Exercise Debt Issued at a Premium (Straight...Ch. 9 - Prob. 52BECh. 9 - Prob. 53BECh. 9 - Prob. 54BECh. 9 - Prob. 55BECh. 9 - Brief ExerciseBonds Issued at a Premium (Effective...Ch. 9 - Prob. 57BECh. 9 - Brief Exercise Bonds issued at a Premium...Ch. 9 - Brief Exercise Cost of Debt Financing Topple...Ch. 9 - Prob. 60BECh. 9 - Brief Exercise Ratio Analysis Whitten Corporations...Ch. 9 - Brief ExerciseRatio Analysis Valiant Corporation...Ch. 9 - Brief Exercise Ratio Analysis Trevor Corporation...Ch. 9 - Brief Exercise (Appendix 9A) Bond Issue Price On...Ch. 9 - Prob. 65BECh. 9 - Prob. 66ECh. 9 - Exercise Bond Premium and Discount Markway Inc. is...Ch. 9 - Exercise Bonds with Annual Interest Payments Kiwi...Ch. 9 - Exercise Issuance and Interest Amortization for...Ch. 9 - Prob. 70ECh. 9 - Prob. 71ECh. 9 - Exercise Interest Payments and Interest Expense...Ch. 9 - Prob. 73ECh. 9 - Prob. 74ECh. 9 - Prob. 75ECh. 9 - Prob. 76ECh. 9 - Prob. 77ECh. 9 - Prob. 78ECh. 9 - Prob. 79ECh. 9 - Prob. 80ECh. 9 - Prob. 81ECh. 9 - Prob. 82ECh. 9 - Prob. 83ECh. 9 - Prob. 84ECh. 9 - ExerciseInstallment Notes ABC bank loans $250,000...Ch. 9 - Prob. 86ECh. 9 - Cost of Debt Financing Stinson Corporations cost...Ch. 9 - Cost of Debt Financing Diamond Companys cost of...Ch. 9 - Ratio Analysis Rising Stars Academy provided the...Ch. 9 - Prob. 90ECh. 9 - Problem Reporting Long-Term Debt Fridley...Ch. 9 - Prob. 92PSACh. 9 - Prob. 93PSACh. 9 - Prob. 94PSACh. 9 - Prob. 95PSACh. 9 - Prob. 96PSACh. 9 - Prob. 97PSACh. 9 - Prob. 98PSACh. 9 - Prob. 99PSACh. 9 - Prob. 91PSBCh. 9 - Prob. 92PSBCh. 9 - Prob. 93PSBCh. 9 - Prob. 94PSBCh. 9 - Prob. 95PSBCh. 9 - Prob. 96PSBCh. 9 - Prob. 97PSBCh. 9 - Prob. 98PSBCh. 9 - Prob. 99PSBCh. 9 - Long-Term Debt and Ethics You arc the CFO of...Ch. 9 - Debtholders receive note contracts, one for each...Ch. 9 - Debtholders receive note contracts, one for each...Ch. 9 - Prob. 102.1CCh. 9 - Prob. 102.2CCh. 9 - Prob. 102.3CCh. 9 - Prob. 102.4CCh. 9 - Leverage Cook Corporation issued financial...Ch. 9 - Prob. 103.2CCh. 9 - Prob. 103.3CCh. 9 - Prob. 103.4CCh. 9 - Prob. 104.1CCh. 9 - Prob. 104.2CCh. 9 - Prob. 104.3CCh. 9 - Prob. 104.4CCh. 9 - Prob. 105.1CCh. 9 - Prob. 105.2CCh. 9 - Prob. 105.3CCh. 9 - Prob. 105.4CCh. 9 - Prob. 105.5CCh. 9 - Comparative Analysis: Under Armour, Inc., versus...Ch. 9 - Prob. 105.7CCh. 9 - Prob. 106.1CCh. 9 - Prob. 106.2CCh. 9 - Prob. 106.3C
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- The company's bank won't lend it any more money than it already has, and investment bankers have said that debentures are out of the question. The treasurer has asked you to do some research and suggest a few ways in which bonds might be made attractive enough to allow the company to borrow. Explain how to secure the bonds with owned assets in great detial. In what ways does it make the bonds more attractive to allow the company to borrow?arrow_forward46. One of the points below is the most accurate?a. After a company files for bankruptcy, the administrator liquidates it, using the money to compensate bondholders, overdue salaries, royalties, and legal fees.b. Where the price of the bond approaches the sinking fund call price, a company with a sinking fund payout due will typically opt to purchase back bonds on the open market.c. Income bonds incur dividends only after the amount of interest received by the corporation is directly earned. As a result, these securities cannot default a corporation, making them better for investors than traditional bonds.d. One drawback to zero coupon bonds being that the tax gains from selling securities are not realised before the bonds maturity.e. Callable bonds should have a lower yield to maturity than noncallable bonds, assuming all other factors remain stable.arrow_forwardWhich of the following statements is CORRECT? a. Sinking fund provisions never require companies to retire their debt; they only establish "targets" for the company to reduce its debt over time. b. Most sinking funds require the issuer to provide funds to a trustee, who holds the money so that it will be available to pay off bondholders when the bonds mature. c. Sinking fund provisions sometimes turn out to adversely affect bondholders, and this is most likely to occur if interest rates decline after the bond was issued. d. If interest rates increase after a company has issued bonds with a sinking fund, the company will be less likely to buy bonds on the open market to meet its sinking fund obligation and more likely to call them in at the sinking fund call price. e. A sinking fund provision makes a bond more risky to investors at the time of issuance.arrow_forward
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