4th Edition

ISBN: 9781259307959

Author: J. David Spiceland, Wayne M Thomas, Don Herrmann

Publisher: McGraw-Hill Education

Concept explainers

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

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Textbook Question

Chapter 9, Problem 9.2BP

Explore the impact of leases on the debt to equity ratio (LO9–3, LO9–8)

Chunky Cheese Pizza has $61 million in bonds payable. The bond indenture states that the debt to equity ratio cannot exceed 3.25. Chunky’s total assets are $201 million, and its liabilities other than the bonds payable are $91 million. The company is considering some additional financing through leasing.

Required:

1. Calculate total stockholders’ equity using the balance sheet equation.

2. Calculate the debt to equity ratio.

3. Explain the difference between an operating and a capital lease.

4. The company enters a lease agreement requiring lease payments with a present value of $26 million. Will this lease agreement affect the debt to equity ratio differently if the lease is recorded as an operating lease versus a capital lease?

5. Will entering into the lease cause the debt to equity ratio to be in violation of the contractual agreement in the bond indenture? Show your calculations (a) assuming an operating lease and (b) assuming a capital lease.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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Chapter 9, Problem 9.1BP

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Chapter 9 Solutions

Financial Accounting

Ch. 9 - What is capital structure? How do the capital...Ch. 9 - Prob. 2RQ Ch. 9 - How do interest expense and the carrying value of...Ch. 9 - Prob. 4RQ Ch. 9 - What are bond issue costs? What is an underwriter?Ch. 9 - Why do some companies issue bonds rather than...Ch. 9 - Prob. 7RQ Ch. 9 - What are convertible bonds? How do they benefit...Ch. 9 - How do we calculate the issue price of bonds? Is...Ch. 9 - Prob. 10RQ

Ch. 9 - If bonds issue at a discount, is the stated...Ch. 9 - Prob. 12RQ Ch. 9 - Prob. 13RQ Ch. 9 - Prob. 14RQ Ch. 9 - 15.If bonds issue at a discount, what happens to...Ch. 9 - Prob. 16RQ Ch. 9 - Prob. 17RQ Ch. 9 - Prob. 18RQ Ch. 9 - 19.If bonds with a face value of 250,000 and a...Ch. 9 - Prob. 20RQ Ch. 9 - Prob. 9.1BE Ch. 9 - Prob. 9.2BE Ch. 9 - Calculate the issue price of bonds (LO95) Ultimate...Ch. 9 - Calculate the issue price of bonds (LO95) Ultimate...Ch. 9 - Calculate the issue price of bonds (LO95) Ultimate...Ch. 9 - Prob. 9.6BE Ch. 9 - Prob. 9.7BE Ch. 9 - Prob. 9.8BE Ch. 9 - Prob. 9.9BE Ch. 9 - Record bond issue and related annual interest...Ch. 9 - Record bond issue and related annual interest...Ch. 9 - Prob. 9.12BE Ch. 9 - Prob. 9.13BE Ch. 9 - Prob. 9.14BE Ch. 9 - Prob. 9.15BE Ch. 9 - Prob. 9.16BE Ch. 9 - Prob. 9.17BE Ch. 9 - Calculate ratios (LO98) Surfs Up, a manufacturer...Ch. 9 - Prob. 9.1E Ch. 9 - Prob. 9.2E Ch. 9 - Compare operating and capital teasel (LO93, LO98)...Ch. 9 - listed below are terms and definitions associated...Ch. 9 - Prob. 9.5E Ch. 9 - Prob. 9.6E Ch. 9 - Prob. 9.7E Ch. 9 - Prob. 9.8E Ch. 9 - Prob. 9.9E Ch. 9 - Prob. 9.10E Ch. 9 - Prob. 9.11E Ch. 9 - Prob. 9.12E Ch. 9 - Prob. 9.13E Ch. 9 - Prob. 9.14E Ch. 9 - Prob. 9.15E Ch. 9 - Prob. 9.16E Ch. 9 - Prob. 9.17E Ch. 9 - Prob. 9.18E Ch. 9 - (LO92, LO98) On January 1, 2018, the general...Ch. 9 - Record and analyze installment notes (LO92) On...Ch. 9 - Explore the impact of leases on the debt to equity...Ch. 9 - Prob. 9.3AP Ch. 9 - Prob. 9.4AP Ch. 9 - Understand a bond amortization schedule (LO96) On...Ch. 9 - Prob. 9.6AP Ch. 9 - Calculate and analyze ratios (LO98) Selected...Ch. 9 - Prob. 9.1BP Ch. 9 - Explore the impact of leases on the debt to equity...Ch. 9 - Prob. 9.3BP Ch. 9 - Prob. 9.4BP Ch. 9 - Prob. 9.5BP Ch. 9 - Prob. 9.6BP Ch. 9 - Calculate and analyze ratios (LO98) Selected...Ch. 9 - Prob. 9.1APCP Ch. 9 - Prob. 9.2APFA Ch. 9 - The Buckle, Inc. Financial information for Buckle...Ch. 9 - American Eagle Outfitters, Inc., vs. The Buckle,...Ch. 9 - Ethics The Tony Hawk Skate Park was built in early...Ch. 9 - Prob. 9.7APWC Ch. 9 - Prob. 9.8APEM

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Solution Summary: The author explains the difference between an operating lease and a capital lease.

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