Cornerstones of Financial Accounting
4th Edition
ISBN: 9781337690881
Author: Jay Rich, Jeff Jones
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 10, Problem 90.1C
To determine
Concept introduction:
Debt to Equity Ratio:
Debt to equity ratio is calculated to determine the leverage position of the company. It compares the total liabilities of the company with it total shareholders’ equity. The debt to equity ratio is calculated by dividing the Total Liabilities by Total
To calculate:
The Debt to equity ratio before issuing the 10 million stocks for land.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Read the following case and then use your knowledge, skills and critical thinking to answer the questions below:
You are hired to work as an accountant at African Company which has an active trading strategy for debt investments. African Company engaged in purchasing and selling several debt investments to
make profits. On December 31, 2018, the company had 3 debt investments as follows:
Egyptian Company 7% Bonds, the amortized cost is $310,000.
Tunisia Company 8% Bonds, the amortized cost is $525,000.
Morocco Company 6% Bonds, the amortized cost is $415,000.
If the market values of Egyptian Company, Tunisia Company, and Morocco Company debt investments on December 31, 2018, were, $304,000, $538,000, $413,000, respectively.
Required 1:
Prepare the debt investments portfolio for African Company on December 31, 2018, and prepare the adjusting entry on the date?
Required 2:
Assume that African Company sold Tunisia Company 8% Bonds on April 1, 2019 for $519,000 at that time the amortized…
The founder of Erenza asks us to assist her in accounting and analysis of the corporation's
bonds, which have an annual contract rate of 8%. She wants to know the business and
accounting implications of further debt issuances as she looks for ways to finance the
growth of Erenza, The following Tableau Dashboard is provided to help us address her
questions and provide recommendations for her business decisions.
1(a). Prepare journal entries to record the issuance of Frenza bonds on January 1, Year 1.
1(b). Prepare journal entries to record the first and second interest payments on June 30,
Year 1, and December 31, Year 1.
1(c). Prepare journal entries to record the maturity of the bonds on December 31, Year 3.
2. Frenza needs to raise money to purchase new equipment. The founder is concerned
about losing ownership control of her company. Which of the following ways to raise
money would we recommend?
3. Erenza needs to raise money to purchase more inventory. The founder is concerned…
Aggressive Corporation approaches Matt Taylor, a loan officer for Oklahoma State Bank, seeking to increase the company's borrowings with the bank from $100,000 to $150,000. Matt has an uneasy feeling as he examines the loan application from Aggressive Corporation, which just completed its first year of operations. The application included the following financial statements.
The income statement submitted with the application shows a net income of $30,000 in the first year of operations. Referring to the balance sheet, this net income represents a more-than-acceptable 15% rate of return on assets of $200,000.
Matt's concern stems from his recollection that the $100,000 note payable reported on the balance sheet is a three-year loan from his bank, approved earlier this year. He recalls another promising new company that, just recently, defaulted on its loan due to its inability to generate sufficient cash flows to meet its loan obligations.
Seeing Matt's hesitation, Larry Bling, the CEO…
Chapter 10 Solutions
Cornerstones of Financial Accounting
Ch. 10 - Prob. 1DQCh. 10 - 2. What does a share of stock represent?Ch. 10 - Prob. 3DQCh. 10 - Prob. 4DQCh. 10 - Prob. 5DQCh. 10 - Prob. 6DQCh. 10 - Prob. 7DQCh. 10 - Prob. 8DQCh. 10 - Prob. 9DQCh. 10 - Prob. 10DQ
Ch. 10 - 11. Describe how cumulative preferred stock...Ch. 10 - Prob. 12DQCh. 10 - 13. What balance sheet accounts are affected by...Ch. 10 - 14. What is the difference between par value and...Ch. 10 - Prob. 15DQCh. 10 - Prob. 16DQCh. 10 - Prob. 17DQCh. 10 - Prob. 18DQCh. 10 - Prob. 19DQCh. 10 - Prob. 20DQCh. 10 - Prob. 21DQCh. 10 - Prob. 22DQCh. 10 - Prob. 23DQCh. 10 - Prob. 24DQCh. 10 - Prob. 25DQCh. 10 - Prob. 26DQCh. 10 - Prob. 27DQCh. 10 - Prob. 28DQCh. 10 - Prob. 29DQCh. 10 - Prob. 30DQCh. 10 - Prob. 31DQCh. 10 - Prob. 32DQCh. 10 - Prob. 33DQCh. 10 - Prob. 34DQCh. 10 - Which of the following is not a component of...Ch. 10 - Which of the following statements is true? The...Ch. 10 - Authorized stock represents the: number of shares...Ch. 10 - Prob. 4MCQCh. 10 - Prob. 5MCQCh. 10 - Ames Corporation repurchases 10,000 shares of its...Ch. 10 - With regard to preferred stock, its stockholders...Ch. 10 - Prob. 8MCQCh. 10 - Prob. 9MCQCh. 10 - A company would repurchase its own stock for all...Ch. 10 - Prob. 11MCQCh. 10 - Prob. 12MCQCh. 10 - Prob. 13MCQCh. 10 - Prob. 14MCQCh. 10 - When a company declares a cash dividend, which of...Ch. 10 - Prob. 16MCQCh. 10 - Prob. 17MCQCh. 10 - The balance of the $2.50 par value Common Stock...Ch. 10 - When a company declares a 3-for-l stock split, the...Ch. 10 - Shea Company has 100,000 shares of 6%, S50 par...Ch. 10 - RVR Enterprises shows net income of $1 00,000 for...Ch. 10 - Comprehensive income: includes transactions that...Ch. 10 - Prob. 23MCQCh. 10 - Prob. 24MCQCh. 10 - Prob. 25CECh. 10 - Recording the Sale of Common Stock Plymouth...Ch. 10 - Calculating the Number of Shares Issued Castalia...Ch. 10 - Prob. 28CECh. 10 - Prob. 29CECh. 10 - Prob. 30CECh. 10 - Prob. 31CECh. 10 - Cash Dividends King Tut Corporation issued 19,000...Ch. 10 - Prob. 33CECh. 10 - Prob. 34CECh. 10 - Preferred and Common Stock Dividends Barstow...Ch. 10 - Preferred Stock Dividends Seashell Corporation has...Ch. 10 - Stockholder Profitability Ratios The following...Ch. 10 - Stockholder Payout Ratios The following...Ch. 10 - Prob. 39BECh. 10 - Recording the Sale of Common and Preferred Stock...Ch. 10 - Prob. 41BECh. 10 - Calculating the Number of Shares Issued Castanet...Ch. 10 - Prob. 43BECh. 10 - Accounting for Treasury Stock Paris Corporation...Ch. 10 - Treasury Stock Refer to the information for...Ch. 10 - Prob. 46BECh. 10 - Cash Dividends Cyprus Corporation issued 12,000...Ch. 10 - Prob. 48BECh. 10 - Augusta Corporation reported the following...Ch. 10 - Preferred and Common Stock Dividends Brookshed...Ch. 10 - Prob. 51BECh. 10 - Prob. 52BECh. 10 - Prob. 53BECh. 10 - Stockholder Payout Rations Super Duper Corporation...Ch. 10 - Prob. 55BECh. 10 - Prob. 56ECh. 10 - Outstanding Stock Lars Corporation shows the...Ch. 10 - Capital Stock Refer to the information for Stahl...Ch. 10 - Preparation of Stockholders Equity Section Refer...Ch. 10 - Issuing Common Stock Carmean Products Inc. sold...Ch. 10 - Issuing and Repurchasing Stock Mohawk Company had...Ch. 10 - Prepare the Stockholders' Equity Section Renee...Ch. 10 - Prepare the Stockholders' Equity Section Wildcat...Ch. 10 - Prob. 64ECh. 10 - Treasury Stock Transactions Garrett Inc. had no...Ch. 10 - Cash Dividends on Common Stock Berkwild Company is...Ch. 10 - Cash Dividends on Common and Preferred Stock Lemon...Ch. 10 - Prob. 68ECh. 10 -
Stock Dividends
Crystal Corporation has the...Ch. 10 - Stock Dividend The balance sheet of Cohen...Ch. 10 - Prob. 71ECh. 10 - Stock Dividends and Stock Splits The balance sheet...Ch. 10 - Preferred Dividends Eastern Inc.s equity includes...Ch. 10 - Cumulative Preferred Dividends Capital stock of...Ch. 10 - Retained Earnings Tigress Manufacturing had...Ch. 10 - Prob. 76ECh. 10 - Prob. 77ECh. 10 - Ratio Analysis Consider the following information....Ch. 10 - Ratio Analysis MJO Inc. has the following...Ch. 10 - Stockholders' Equity Terminology A list of terms...Ch. 10 - Prob. 81PSACh. 10 - Prob. 82PSACh. 10 - Treasury Stock Transactions Hansen Inc. engaged in...Ch. 10 - Statement of Stockholders' Equity At the end of...Ch. 10 - Common Dividends Fusion Payroll Service began 2019...Ch. 10 - Problem 10-86A Stock Dividends and Stock Splits...Ch. 10 - Prob. 87PSACh. 10 - Ratio Analysis Consider the following information...Ch. 10 - Prob. 81PSBCh. 10 - Prob. 82PSBCh. 10 - Treasury Stock Transactions Bentonite Adhesives...Ch. 10 - Statement of Stockholders' Equity At the end of...Ch. 10 - Common Dividends Thompson Payroll Service began in...Ch. 10 - Prob. 86PSBCh. 10 - Prob. 87PSBCh. 10 - Prob. 88PSBCh. 10 - Prob. 89.1CCh. 10 - Prob. 89.2CCh. 10 - Prob. 90.1CCh. 10 - Prob. 90.2CCh. 10 - Prob. 91CCh. 10 - Prob. 92.1CCh. 10 - Prob. 92.2CCh. 10 - Prob. 92.3CCh. 10 - Prob. 92.4CCh. 10 - Prob. 92.5CCh. 10 - Prob. 93.1CCh. 10 - Prob. 93.2CCh. 10 - Prob. 93.3CCh. 10 - Prob. 93.4CCh. 10 - Prob. 93.5CCh. 10 - Prob. 93.6CCh. 10 - Prob. 94.1CCh. 10 - Prob. 94.2CCh. 10 - Prob. 94.3CCh. 10 - Prob. 94.4CCh. 10 - Prob. 94.5CCh. 10 - Prob. 94.6CCh. 10 - Prob. 95.1CCh. 10 - Prob. 95.2C
Knowledge Booster
Similar questions
- The founder of Frenza asks us to assist her in accounting and analysis of the corporation’s bonds, which have an annual contract rate of 8%. She wants to know the business and accounting implications of further debt issuances as she looks for ways to finance the growth of Frenza. The following Tableau Dashboard is provided to help us address her questions and provide recommendations for her business decisions. 1. Based on the current market rates for bonds of Frenza, Nelo, and Lika, which of the following bonds do lenders believe has the highest risk level?2. If Frenza decided to issue new bonds with a contract rate of 11%, would these new bonds be sold at a discount or premium based on the current market rate for Frenza bonds?3. Frenza is planning an $160,000 expansion to launch a new product line. Frenza currently earns $100,000 in net income, and the new product line will yield $50,000 in additional income before any interest expense. Frenza has three options: (1) do not expand, (2)…arrow_forwardNur Inc., is a private company that designs, manufactures, and distributes branded consumer products. During its most recent fiscal year, the had revenues of $200 million and earnings of $30 million. The company has filed a registration statement with the SEC for its IPO. Before the stock is offered, Nur's investment bankers would like to estimate the value of the company using comparable companies. The investment bankers have assembled the following information based on data for other companies in the same industry that have recently gone public. In each case, the ratios are based on the IPO price. After the IPO, Nur Inc will have 10 million shares outstanding. Estimate the IPO price for Nur Inc using the price/earnings ratio and the price/revenues ratio. Company Ray Products Corp. Byce-Frasier Inc. Fashion Industries Group Recreation International Average Price/Earnings Price/Revenues 18.8 X 19.5 X 24.1 X 22.4 X 21.2 X 1.2 X 0.9 X 0.8 X 0.7 X 0.9 Xarrow_forwardYou are the newest member of the staff of Brinks & Company, a medium-size investment management firm. You are supervised by Les Kramer, an employee of two years. Les has a reputation as being technically sound but has a noticeable gap in his accounting education. Knowing you are knowledgeable about accounting issues, he requested you provide him with a synopsis of accounting for share issue costs. “I thought the cost of issuing securities is recorded separately and expensed over time,” he stated in a handwritten memo. “But I don’t see that for IBR’s underwriting expenses. What gives?” He apparently was referring to a disclosure note on a page of IBR’s annual report, photocopied and attached to his memo. To raise funds for expansion, the company sold additional shares of its $.10 par common stock. The following disclosure note appeared in the company’s most recent annual report: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 10—Stock Transactions (in part) In February and March,…arrow_forward
- The founder of Frenza asks us to assist her in accounting and analysis of the corporation's bonds, which have an annual contract rate of 8%. She wants to know the business and accounting implications of further debt issuances as she looks for ways to finance the growth of Frenza. The following Tableau Dashboard is provided to help us address her questions and provide recommendations for her business decisions. $100,000 $80,000 $60,000 $40,000 $20,000 $0 Frenza Bond Amortization Carrying Value Unamortized Discount January 1, Year June 30, Year 1 December 31, June 30, Year 2 December 31, June 30, Year 3 December 31, 1 Year 1 Year 2 Year 3 Cash & Inventory for Competing Companies Market Rate for Company Bondsarrow_forwardA Neighborhood hardware store is planning to add an equipment rental service to its business. It needs $30,000 to $40,000 to buy the rental equipment and expects rental sales of $3,000 to $3,500 per month. It rents its building with ten years remaining on its lease and has had stable total sales over the past several years. This exercise provides an example of how the aspects of equity and debt discussed in the lecture relate to a business situation. The following points should be covered. What is the hardware store's capacity to support equity or debt financing? What mixture of debt and equity is appropriate to use? What are the likely sources?arrow_forwardHanley Limited manufactures products that capture solar energy. The company plans to list its shares on the Venture Exchange. To do so, it must meet all of the following initial listing requirements (among others): Net tangible assets must be at least $500,000. Pre-tax earnings must be $50,000. The company must have adequate working capital. Hanley has experienced significant growth in sales and is having difficulty estimating its bad debt expense. During the year, the sales team has been extending credit more aggressively in order to increase their commission compensation. Under the percentage-of-receivables approach using past percentages, the estimate is $50,000. Hanley has performed an aging and estimates the bad debts at $57,000. Finally, using a percentage of sales, the expense is estimated at $67,000. Before booking the allowance, net tangible assets are approximately $550,000. The controller decides to accrue $50,000, which results in pre-tax earnings of $60,000.…arrow_forward
- Burton Howard, CFA, is an equity analyst with Maplewood Securities. Howard is preparinga research report on Confabulated Materials, SA, a publicly traded company based in Francethat complies with IFRS. As part of his analysis, Howard has assembled data gathered fromthe fi nancial statement footnotes of Confabulated’s 2009 Annual Report and from discussionswith company management. Howard is concerned about the eff ect of this information onConfabulated’s future earnings.Information about Confabulated’s investment portfolio for the years ended 31 December2008 and 2009 is presented in Exhibit 1. As part of his research, Howard is considering thepossible eff ect on reported income of Confabulated’s accounting classifi cation for fi xed incomeinvestments.EXHIBIT 1 Confabulated’s Investment Portfolio (€ Th ousands)Characteristic Bugle AG Cathay Corp Dumas SAClassifi cation Available-for-sale Held-to-maturity Held-to-maturityCost* €25,000 €40,000 €50,000Market value, 31 December 2008 29,000…arrow_forwardBurton Howard, CFA, is an equity analyst with Maplewood Securities. Howard is preparinga research report on Confabulated Materials, SA, a publicly traded company based in Francethat complies with IFRS. As part of his analysis, Howard has assembled data gathered fromthe fi nancial statement footnotes of Confabulated’s 2009 Annual Report and from discussionswith company management. Howard is concerned about the eff ect of this information onConfabulated’s future earnings.Information about Confabulated’s investment portfolio for the years ended 31 December2008 and 2009 is presented in Exhibit 1. As part of his research, Howard is considering thepossible eff ect on reported income of Confabulated’s accounting classifi cation for fi xed incomeinvestments.EXHIBIT 1 Confabulated’s Investment Portfolio (€ Th ousands)Characteristic Bugle AG Cathay Corp Dumas SAClassifi cation Available-for-sale Held-to-maturity Held-to-maturityCost* €25,000 €40,000 €50,000Market value, 31 December 2008 29,000…arrow_forwardBurton Howard, CFA, is an equity analyst with Maplewood Securities. Howard is preparinga research report on Confabulated Materials, SA, a publicly traded company based in Francethat complies with IFRS. As part of his analysis, Howard has assembled data gathered fromthe fi nancial statement footnotes of Confabulated’s 2009 Annual Report and from discussionswith company management. Howard is concerned about the eff ect of this information onConfabulated’s future earnings.Information about Confabulated’s investment portfolio for the years ended 31 December2008 and 2009 is presented in Exhibit 1. As part of his research, Howard is considering thepossible eff ect on reported income of Confabulated’s accounting classifi cation for fi xed incomeinvestments.EXHIBIT 1 Confabulated’s Investment Portfolio (€ Th ousands)Characteristic Bugle AG Cathay Corp Dumas SAClassifi cation Available-for-sale Held-to-maturity Held-to-maturityCost* €25,000 €40,000 €50,000Market value, 31 December 2008 29,000…arrow_forward
- Burton Howard, CFA, is an equity analyst with Maplewood Securities. Howard is preparinga research report on Confabulated Materials, SA, a publicly traded company based in Francethat complies with IFRS. As part of his analysis, Howard has assembled data gathered fromthe fi nancial statement footnotes of Confabulated’s 2009 Annual Report and from discussionswith company management. Howard is concerned about the eff ect of this information onConfabulated’s future earnings.Information about Confabulated’s investment portfolio for the years ended 31 December2008 and 2009 is presented in Exhibit 1. As part of his research, Howard is considering thepossible eff ect on reported income of Confabulated’s accounting classifi cation for fi xed incomeinvestments.EXHIBIT 1 Confabulated’s Investment Portfolio (€ Th ousands)Characteristic Bugle AG Cathay Corp Dumas SAClassifi cation Available-for-sale Held-to-maturity Held-to-maturityCost* €25,000 €40,000 €50,000Market value, 31 December 2008 29,000…arrow_forwardDavid Lyons, CEO of Lyons Solar Technologies, is concerned about his firm’s level of debt financing. The company uses short-term debt to finance its temporary working capital needs, but it does not use any permanent (long-term) debt. Other solar technology companies have debt, and Mr. Lyons wonders why they use debt and what its effects are on stock prices. To gain some insights into the matter, he poses the following questions to you, his recently hired assistant: Who were Modigliani and Miller (MM), and what assumptions are embedded in the MM and Miller models?arrow_forwardhe table below shows a book balance sheet for the Wishing Well Motel chain. The company’s long-term debt is secured by its real estate assets, but it also uses short-term bank loans as a permanent source of financing. It pays 14% interest on the bank debt and 10% interest on the secured debt. Wishing Well has 10 million shares of stock outstanding, trading at $83 per share. The expected return on Wishing Well’s common stock is 22%. (Table figures in $ millions.) Cash and marketable securities $ 110 Bank loan $ 280 Accounts receivable 180 Accounts payable 130 Inventory 50 Current liabilities $ 410 Current assets $ 340 Real estate 1,850 Long-term debt 1,390 Other assets 110 Equity 500 Total $ 2,300 Total $ 2,300 Calculate Wishing Well’s WACC. Assume that the book and market values of Wishing Well’s debt are the same. The marginal tax rate is 21%. (Do not round intermediate calculations. Enter your answer as a…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT