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?

Companies are not required to, but have the option to, value some or all of their financial assets and liabilities at fair value. O True O False Next

PROPERTY, PLANT AND EQUIPMENT January  1, 2017,  an entity disclosed the following balances:   Land 4,000,000 Land improvements 1,300,000 Buildings 20,000,000 Machinery and equipment 8,000,000   During the current year, the following transactions occurred:   *   A tract of land was acquired for P2,000,000 cash as a building site.   *    A plant facility consisting of land and building was acquired  in exchange for 200,000 shares of the entity. On the acquisition date, each share had a quoted price of P45 on a  stock exchange. The plant facility was carried on the seller’s books at P1,600,000 for land and P5,400,000 for the building at the exchange date. Current appraised values for the land and the building, respectively, are P2,000,000 and P8,000,000. The building has an expected life of forty years with a P200,000 residual value.   *    Items of machinery and equipment were purchased  at a total cost of P4,000,000. Additional costs incurred were freight…

For the example below, list and describe the input(s) (observable or unobservable) and valuation technique(s) used. Determine the appropriate classification in the fair value hierarchy. Company A invested in the common stock of a private furniture manufacturer, Company Z. Quoted prices are not available for Company Z’s stock. Company Z’s fair value is measured as the present value of future cash flow. The measurement requires management assumptions such as discount rate, the amount and the timing of future cash flow.

Which is the quickest way to determine whether a firm has too much debt?

One way that debt holders can add some "protection" to their claim on the firm's assets is to add "covenants" to their debt contract (agreement between the firm and the debt holders). Covenants spell out things the firm can and can't do, and sometimes must do, under the debt contract. One example would be a limit on the firm in how much they can pay out to equity holders such as with dividends.   True False

4. Which of the following is false about the risk-shifting problem? Risk-shifting leads to a transfer of value from debt-holders to equity holders Risk-shifting leads prospective lenders to pay less for debt and require higher interest payments Risk-shifting arises when shareholders choose negative NPV projects with higher risk Risk-shifting is an example of an agency cost of debt Risk-shifting is greater in firms with low leverage

What is cost of financial distress to the firm without going bankrupt?Give two examples.

The key benefits associated with refunding debt are the reduction in the firm's debt ratio and the creation of more reserve borrowing capacity. true or false explain

Discuss the arguments for each position. Some individuals maintain that the only proper accounting treatment for all marketable securities is current value, while others maintain that this treatment might allow companies to manage earnings.