GEN COMBO LL FUNDAMENTALS OF FINANCIAL ACCOUNTING; CONNECT ACCESS CARD
6th Edition
ISBN: 9781260260083
Author: Fred Phillips Associate Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 11, Problem 1ME
Equity versus Debt Financing
Indicate whether each of the following relates to equity (E) or debt (D) financing and whether it makes that form of financing more, or less, favorable.
_____ 1. Interest is tax deductible.
_____ 2. Dividends are optional.
_____ 3. It must be repaid.
_____ 4. Additional stock issuances dilute existing stockholders’ control.
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Which of the statements are not correct
Select one:
a. Profits refers to earnings before Interest and Taxes
b. Investment decisions relate to pattern of financing
c. Dividend pay out ratio refers to what proportion is paid to shareholders
d. Borrowed funds are relatively cheaper than shareholders’ funds
The difference between equity financing and debt financing is that
Group of answer choices
A. equity financing involves borrowing money.
B. debt financing involves selling part of the company.
C. debt financing means the company has no debt.
D. equity financing involves selling part of the company.
Identify the following as elther an advantage or a disadvantage of bond financing for a company.
a. Bonds increase return on equity if the company earns a higher return with borrowed funds than it pays in interest.
b. Interest on bonds is tax deductible.
c. Bonds require payment of par value at maturity.
d. Bonds do not affect owner control.
e. A company earns a lower return with borrowed funds than it pays in interest.
f. Unlike equity ownership, a par value payment is required at a specified date.
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Chapter 11 Solutions
GEN COMBO LL FUNDAMENTALS OF FINANCIAL ACCOUNTING; CONNECT ACCESS CARD
Ch. 11 - Prob. 1QCh. 11 - Prob. 2QCh. 11 - Prob. 3QCh. 11 - Explain each of the following terms: (a)...Ch. 11 - What are the differences between common stock and...Ch. 11 - What is the distinction between par value and...Ch. 11 - What are the usual characteristics of preferred...Ch. 11 - What items are included in Accumulated Other...Ch. 11 - What is treasury stock? Why do corporations...Ch. 11 - How is treasury stock reported on the balance...
Ch. 11 - What are the two financial requirements to support...Ch. 11 - What is the difference between cumulative and...Ch. 11 - What is a stock dividend? How does a stock...Ch. 11 - What are the primary reasons for issuing a stock...Ch. 11 - Your company has been very profitable and expects...Ch. 11 - Identify and explain four important dates with...Ch. 11 - Prob. 17QCh. 11 - How do stock repurchases affect the EPS and ROE...Ch. 11 - What is one interpretation of a high P/E ratio?Ch. 11 - Prob. 20QCh. 11 - Which feature is not applicable to common stock...Ch. 11 - Which statement regarding treasury stock is false?...Ch. 11 - Which of the following statements about stock...Ch. 11 - Which of the following is ordered from the largest...Ch. 11 - Prob. 5MCCh. 11 - A journal entry is not recorded on what date? a....Ch. 11 - Prob. 7MCCh. 11 - Prob. 8MCCh. 11 - Prob. 9MCCh. 11 - Prob. 10MCCh. 11 - Equity versus Debt Financing Indicate whether each...Ch. 11 - Computing the Number of Issued Shares Face 2 Face...Ch. 11 - Computing the Number of Unissued Shares The...Ch. 11 - Analyzing and Recording the Issuance of Common...Ch. 11 - Analyzing and Recording the Issuance of No-Par...Ch. 11 - Determining the Effects of Stock Issuance and...Ch. 11 - Determining the Amount of a Dividend Netpass...Ch. 11 - Recording Dividends On May 20, the board of...Ch. 11 - Determining the Impact of a Stock Dividend Sturdy...Ch. 11 - Determining the Impact of a Stock Split Complete...Ch. 11 - Determining the Amount of a Preferred Dividend...Ch. 11 - Determining the Amount of a Preferred Dividend...Ch. 11 - Calculating and Interpreting Earnings per Share...Ch. 11 - Inferring Financial Information Using the P/E...Ch. 11 - (Supplement 11A) Comparing Owner's Equity to...Ch. 11 - (Supplement 11B) Recording a Stock Dividend To...Ch. 11 - Computing Shares Outstanding The 2016 annual...Ch. 11 - Reporting Stockholders' Equity and Determining...Ch. 11 - Preparing the Stockholders' Equity Section of the...Ch. 11 - Reporting the Stockholders' Equity Section of the...Ch. 11 - Determining the Effects of the Issuance of Common...Ch. 11 - Recording and Reporting Stockholders' Equity...Ch. 11 - Finding Amounts Missing from the Stockholders'...Ch. 11 - Recording Treasury Stock Transactions and...Ch. 11 - Prob. 9ECh. 11 - Computing Dividends on Preferred Stock and...Ch. 11 - Recording Dividends and Preparing a Statement of...Ch. 11 - Analyzing Stock Dividends On December 31, the...Ch. 11 - Prob. 13ECh. 11 - Comparing 100 percent Stock Dividend and 2-for-1...Ch. 11 - Journalizing Cash Dividends Bogscraft Company has...Ch. 11 - Preparing a Statement of Retained Earnings and...Ch. 11 - Determining the Effect of a Stock Repurchase on...Ch. 11 - (Supplement 11 A) Comparing Stockholders' Equity...Ch. 11 - Prob. 19ECh. 11 - Analyzing Accounting Equation Effects, Recording...Ch. 11 - Recording Stock Dividends Activision Blizzard,...Ch. 11 - Finding Missing Amounts At December 31, the...Ch. 11 - Prob. 4CPCh. 11 - Prob. 5CPCh. 11 - Analyzing Accounting Equation Effects, Recording...Ch. 11 - Recording Cash Dividends National Chocolate Corp....Ch. 11 - Finding Missing Amounts At December 31, the...Ch. 11 - Calculating Common and Preferred Cash Dividends...Ch. 11 - Prob. 5PACh. 11 - Analyzing Accounting Equation Effects, Recording...Ch. 11 - Prob. 2PBCh. 11 - Prob. 3PBCh. 11 - Prob. 4PBCh. 11 - Prob. 5PBCh. 11 - Financial Reporting of Depreciation, Write-off,...Ch. 11 - Prob. 2COPCh. 11 - Prob. 1SDCCh. 11 - Prob. 2SDCCh. 11 - Prob. 4SDCCh. 11 - Prob. 5SDCCh. 11 - Critical Thinking: Making a Decision asan Investor...Ch. 11 - CC11 Accounting for Equity Financing Nicole has...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Which of the following is not a way to manage earnings? A. Change the method for bad debt estimation. B. Change the figure for the uncollectible percentage. C. Under the balance sheet aging method, change the past-due categories. D. Change the dates of common stock issuance.arrow_forwardThe difference between equity financing and debt financing is that A. equity financing involves borrowing money. B. equity financing involves selling part of the company. C. debt financing involves selling part of the company. D. debt financing means the company has no debt.arrow_forwardWhich is a correct statement below? A. Equity is the residual interest in the liabilities of the entity after deducting all of its assets.B. Subscriptions receivable shall preferably be reflected as a deduction from the related subscribed share capital.C. Share premium is also known as capital stock.D. A deficit is a credit balance in retained earnings.arrow_forward
- For a company holding significant net financial assets (NFO), after issuing some new debt, its risk in operation should be_____ as before issuing the debt; and its required rate of return of equity should be ______ as before. A. the same as .... the same as B. lower than ... lower than C. higher than ... higher than D. the same as ... higher than Please donot provide solution in image format and provide solution in step by step format and asaparrow_forwardIn general, debt financing is _______ than equity financing. A firm’s ______ has priority in claiming the company’s assets. Question 17 options: 1) less costly, shareholders 2) less costly, lender 3) more costly, shareholders 4) more costly, lenderarrow_forwardPlease answer the following follow up questions Indicate whether each of the following statements is true or false. Support your answers with the relevant explanations. d) The higher the proportion of equity in a company’s overall capital structure, thehigher return required by its debtholders. (Explain your reasoning – in yourexplanation, provide a numerical example supporting your answer.) e) In the presence of corporate taxes, a company would prefer to raise debt onlywhen the benefits of the tax shield fully offset the cost of debt. (Explain yourreasoning – in your explanation, provide a numerical example supporting youranswer.) f) In the presence of bankruptcy risk, the cost of capital of a company with debt is always higher than the cost of capital of an unlevered company. (Explain yourreasoning – in your explanation, provide a numerical example supporting youranswer.)arrow_forward
- Which of the below statements is false for equity? A. Limited liability B.Residual claim on firm value C.Payouts to equity holders must be made before interest payments D.Voting Rightsarrow_forwardThe difference between equity financing and debt financing is that a. equity financing involves borrowing money. b. debt financing means the company has no debt. c. equity financing involves selling part of the company. d. debt financing involves selling part of the company.arrow_forwardI. Directions: Write TRUE if the statement is correct; write FALSE if the statement is wrong. Write your answer on the space provided af ter each number. _1. Equity funding involves repayment. _2. The primary disadvantage of equity funding is that the firm's owners relinquish part of their ownership interest and may lose some control. _3. Return on equity depends on company's earnings. _4. Debt financing gives privilege of ownership in a company. _5. When an entrepreneur financed his/her business with debt, lender has the right to tel him/ her how to run a business. _6. When an entrepreneur financed his/ her business with debt, payments are unpredictable and he/ she has no idea what needs to pay every month to pay off the loan. _7. When an entrepreneur financed his/ her business with debt, he/she keeps al the profits. _8. The lender can force the entrepreneur into bankruptcy if he/she cannot pay his/ her loan payments. _9. To force a borrower into bankruptcy for not making their loan…arrow_forward
- Financing activities do not include cash outflows to O stockholders to repurchase common stock. O lenders to pay off long-term debt. O make loans to other entities. O stockholders as dividends.arrow_forwardIdentify 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.arrow_forwardTrue or False 1. In equity financing, the corporation is required to distribute dividends to its stockholders on a regular basis. 2. One of the company's sources of funds is its own accumulated earnings. 3. In a debt equity, there exists a debtor and creditor relationship. 4. Supplier's credit as a source of fund is advantageous both to the debtor and the creditor. 5. One can open a deposit account with a lending institution.arrow_forward
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