Financial Accounting
3rd Edition
ISBN: 9780078025549
Author: J. David Spiceland, Wayne M Thomas, Don Herrmann
Publisher: McGraw-Hill Education
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Chapter 9, Problem 9.6BP
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
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.
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Required information
[The following information applies to the questions displayed below.]
Thrillville has $39.3 million in bonds payable. One of the contractual agreements in the bond is that the debt to equity ratio
cannot exceed 2.0. Thrillville's total assets are $79.3 million, and its liabilities other than the bonds payable are $9.3
million. The company is considering some additional financing through leasing.
Required:
1. Calculate total stockholders' equity using the balance sheet equation. (Enter your answer in millions rounded to 1 decimal place
(i.e., $5,500,000 should be entered as 5.5).)
Stockholders' Equity
minus
!
Required information
[The following information applies to the questions displayed below.]
Thrillville has $39.3 million in bonds payable. One of the contractual agreements in the bond is that the debt to equity ratio
cannot exceed 2.0. Thrillville's total assets are $79.3 million, and its liabilities other than the bonds payable are $9.3
million. The company is considering some additional financing through leasing.
3. The company enters a lease agreement requiring lease payments with a present value of $14.3 million. Record the lease. (If no
entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Enter your answer
in millions (i.e., $5,500,000 should be entered as 5.5) rounded to 1 decimal place.)
!
Required information
[The following information applies to the questions displayed below.]
Thrillville has $39.3 million in bonds payable. One of the contractual agreements in the bond is that the debt to equity ratio
cannot exceed 2.0. Thrillville's total assets are $79.3 million, and its liabilities other than the bonds payable are $9.3
million. The company is considering some additional financing through leasing.
2. Calculate the debt to equity ratio. (Enter your answers in millions (i.e., $5,500,000 should be entered as 5.5). Round ratio answer
to 2 decimal places. Do not round intermediate calculations.)
Debt to Equity Ratio
Numerator/Denominator
Amounts
Chapter 9 Solutions
Financial Accounting
Ch. 9 - What is capital structure? How do the capital...Ch. 9 - Prob. 2RQCh. 9 - What are bond issue costs? What is an underwriter?Ch. 9 - Why do some companies issue bonds rather than...Ch. 9 - Prob. 5RQCh. 9 - What are convertible bonds? How do they benefit...Ch. 9 - How do we calculate the issue price of bonds? Is...Ch. 9 - Prob. 8RQCh. 9 - If bonds issue at a discount, is the stated...Ch. 9 - Prob. 10RQ
Ch. 9 - Prob. 11RQCh. 9 - Prob. 12RQCh. 9 - 15.If bonds issue at a discount, what happens to...Ch. 9 - Prob. 14RQCh. 9 - Prob. 15RQCh. 9 - Prob. 16RQCh. 9 - 19.If bonds with a face value of 250,000 and a...Ch. 9 - How do interest expense and the carrying value of...Ch. 9 - Prob. 19RQCh. 9 - Prob. 20RQCh. 9 - Prob. 9.1BECh. 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. 9.5BECh. 9 - Prob. 9.6BECh. 9 - Prob. 9.7BECh. 9 - Prob. 9.8BECh. 9 - Prob. 9.9BECh. 9 - Prob. 9.10BECh. 9 - Prob. 9.11BECh. 9 - Prob. 9.12BECh. 9 - Prob. 9.13BECh. 9 - Prob. 9.14BECh. 9 - Prob. 9.15BECh. 9 - Prob. 9.16BECh. 9 - Prob. 9.17BECh. 9 - Prob. 9.18BECh. 9 - Prob. 9.1ECh. 9 - listed below are terms and definitions associated...Ch. 9 - Prob. 9.3ECh. 9 - Prob. 9.4ECh. 9 - Prob. 9.5ECh. 9 - Prob. 9.6ECh. 9 - Prob. 9.7ECh. 9 - Prob. 9.8ECh. 9 - Prob. 9.9ECh. 9 - Prob. 9.10ECh. 9 - Prob. 9.11ECh. 9 - Prob. 9.12ECh. 9 - Prob. 9.13ECh. 9 - Prob. 9.14ECh. 9 - Prob. 9.15ECh. 9 - Prob. 9.16ECh. 9 - Compare operating and capital teasel (LO93, LO98)...Ch. 9 - Prob. 9.18ECh. 9 - Prob. 9.1APCh. 9 - Prob. 9.2APCh. 9 - Prob. 9.3APCh. 9 - Prob. 9.4APCh. 9 - Prob. 9.5APCh. 9 - Explore the impact of leases on the debt to equity...Ch. 9 - Prob. 9.7APCh. 9 - Prob. 9.1BPCh. 9 - Prob. 9.2BPCh. 9 - Prob. 9.3BPCh. 9 - Prob. 9.4BPCh. 9 - Prob. 9.5BPCh. 9 - Explore the impact of leases on the debt to equity...Ch. 9 - Prob. 9.7BPCh. 9 - Prob. 9.1APCPCh. 9 - Prob. 9.2APFACh. 9 - Prob. 9.3APFACh. 9 - Prob. 9.4APCACh. 9 - Prob. 9.5APECh. 9 - Prob. 9.7APWCCh. 9 - Prob. 9.8APEM
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