Principles of Accounting Volume 1
19th Edition
ISBN: 9781947172685
Author: OpenStax
Publisher: OpenStax College
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Textbook Question
Chapter 13, Problem 20MC
The 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.
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Students have asked these similar questions
What is the most obvious difference between debt and equity financing?
a. Principal and interest must be repaid for debt financing.
b. Dividend payments are mandatory.
c. Debt financing can result in loss of control.
d. Equity financing is revenue and thus taxable.
Which of the following is incorrect about debt financing?
A. Debt financing always generates excess returns which benefits equity investors
b. One benefit of debt financing is that interest on most debt is fixed
c. One benefit of debt financing is that interest is a tax deductible expense
d. It increases financial leverage
The following are examples of debt financing EXCEPT:
a. Selling an ownership stake in the company
b. Issue bonds repayable with interest
c. Taking a loan from the bank
d. Taking a loan from a family member
Chapter 13 Solutions
Principles of Accounting Volume 1
Ch. 13 - An amortization table ________. A. breaks each...Ch. 13 - A debenture is ________. A. the interest paid on a...Ch. 13 - The principal of a bond is ________. A. the person...Ch. 13 - A convertible bond can be converted into ________....Ch. 13 - On January 1, a company issued a 5-year $100,000...Ch. 13 - On July 1, a company sells 8-year $250,000 bonds...Ch. 13 - On January 1 a company issues a $75,000 bond that...Ch. 13 - On October 1 a company sells a 3-year, $2,500,000...Ch. 13 - On April 1 a company sells a 5-year, $60,000 bond...Ch. 13 - The effective-interest method of bond amortization...
Ch. 13 - When a bond sells at a discount, the carrying...Ch. 13 - The International Financial Reporting Standards...Ch. 13 - The cash interest payment a corporation makes to...Ch. 13 - Whirlie Inc. issued $300,000 face value, 10% paid...Ch. 13 - Naval Inc. issued $200,000 face value bonds at a...Ch. 13 - Keys Inc. issued 100 bonds with a face value of...Ch. 13 - Huang Inc. issued 100 bonds with a face value of...Ch. 13 - OShea Inc. issued bonds at a face value of...Ch. 13 - Gingko Inc. issued bonds with a face value of...Ch. 13 - The difference between equity financing and debt...Ch. 13 - What is the difference between callable and...Ch. 13 - What is the difference between serial bonds and...Ch. 13 - What is a junk bond?Ch. 13 - How are savings bonds different from a corporate...Ch. 13 - What do you have to do to the interest rate and...Ch. 13 - An amortization table/schedule is created to...Ch. 13 - In the amortization table, how is the amortization...Ch. 13 - Does issuing a bond at a discount increase or...Ch. 13 - What kind of account is the Discount on Bonds...Ch. 13 - Why is the effective-interest method of...Ch. 13 - If there is neither a premium nor discount...Ch. 13 - When do you use the Bond Discount Account?Ch. 13 - A company issued bonds with a $100,000 face value,...Ch. 13 - A company issued $100,000, 5-year bonds, receiving...Ch. 13 - Does interest expense increase or decrease when a...Ch. 13 - Halep Inc. borrowed $30,000 from Davis Bank and...Ch. 13 - Beluga Inc. issued 10-year bonds with a face value...Ch. 13 - Krystian Inc. issued 10-year bonds with a face...Ch. 13 - On January 1, 2018, Wawatosa Inc. issued 5-year...Ch. 13 - Diana Inc. issued $100,000 of its 9%, 5-year bonds...Ch. 13 - Oak Branch Inc. issued $700,000 of 5%, 10-year...Ch. 13 - On Jan. 1, Year 1, Foxcroft Inc. issued 100 bonds...Ch. 13 - Medhurst Corporation issued $90,000 in bonds for...Ch. 13 - On Jan. 1, Year 1, Foxcroft Inc. issued 100 bonds...Ch. 13 - Pinetop Corporation issued $150,000 10-year bonds...Ch. 13 - Medhurst Corporation issued $90,000 in bonds for...Ch. 13 - Sharapovich Inc. borrowed $50,000 from Kerber Bank...Ch. 13 - Waylan Sisters Inc. issued 3-year bonds with a par...Ch. 13 - Smashing Cantaloupes Inc. issued 5-year bonds with...Ch. 13 - Chung Inc. issued $50,000 of 3-year bonds on...Ch. 13 - Haiku Inc. issued $600,000 of 10-year bonds with a...Ch. 13 - Waldron Inc. issued $400,000 bonds with a stated...Ch. 13 - Willoughby Inc. issued 100 bonds with a face value...Ch. 13 - Allante Corporate issued 50 bonds with a face...Ch. 13 - Roo Incorporated issued 50 bonds with a face value...Ch. 13 - Piedmont Corporation issued $200,000 of 10-year...Ch. 13 - Lunar Corporation issued $80,000 in bonds for...Ch. 13 - On January 1, 2018, King Inc. borrowed $150,000...Ch. 13 - On July 1, Somerset Inc. issued $200,000 of 10%,...Ch. 13 - Eli Inc. issued $100,000 of 8% annual, 5-year...Ch. 13 - Evie Inc. issued 50 bonds with a $1,000 face...Ch. 13 - Volunteer Inc. issued bonds with a $500,000 face...Ch. 13 - Aggies Inc. issued bonds with a $500,000 face...Ch. 13 - Sub-Cinema Inc. borrowed $10,000 on Jan. 1 and...Ch. 13 - Charleston Inc. issued $200,000 bonds with a...Ch. 13 - Starmount Inc. sold bonds with a $50,000 face...Ch. 13 - Irving Inc. sold bonds with a $50,000, 10%...Ch. 13 - Dixon Inc. issued bonds with a $500,000 face...Ch. 13 - Edward Inc. issued bonds with a $500,000 face...Ch. 13 - Below is select information from two, independent...Ch. 13 - Assume you are a newly-hired accountant for a...
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Similar questions
- Which of the following is not a reason for the issuance of long-term liabilities? Debt financing dilutes ownership interest. Debt may be the only available source of funds. Debt financing may have a lower cost. Debt financing offers an income tax advantage.arrow_forwardTrue or False. 1. If the amount of the bond payable is fully paid, together with the interest, the liability of the issuing entity ceases to exist. 2. Debt equity is raising capital through the creation of a liability. 3. In equity financing, there is debtor and creditor relationship. 4.arrow_forwardIdentify the following as either an advantage or a disadvantage of bond financing for a company. a. Bonds do not affect owner control. b. A company earns a lower return with borrowed funds than it pays in interest. c. A company earns a higher return with borrowed funds than it pays in interest. d. Bonds require payment of periodic interest. e. Interest on bonds is tax deductible. f. Bonds require payment of par value at maturity.arrow_forward
- When bonds and other debt securities are issued, payments such as legal costs, printing costs, and underwriting fees, are referred to as debt issuance costs (called transaction costs under IFRS). If Rushing International prepares its financial statements using IFRS: a. the recorded amount of the debt is increased by the transaction costs. b. the decrease in the effective interest rate caused by the transaction costs is reflected in the interest expense. c. the transaction costs are recorded separately as an asset. d. the increase in the effective interest rate caused by the transaction costs is reflected in the interest expense.arrow_forwardWhich of the following is an advantage of debt financing? a. Excessive debt increases the risk of equity holders and therefore depresses share price. b. The obligation is generally fixed in terms of interest and principal payments. c. Interest and principal obligations must be paid regardless of the economic position of the firm. d. Debt agreements contain covenants.arrow_forwardMany types of debt including auto loans, student loans and credit debt are securitized. The practice of securitization helps provide extra funding to those markets and reduces the risk of lending by pooling the debt. a) true b) falsearrow_forward
- (1) How does getting a secured loan using accounts receivable as collateral differ from factoring? (2) Why would lenders want to see that a business already has some level of capitalization before giving it access to more capital by means of a loan?arrow_forwardIdentify the following as either an advantage (A) or a disadvantage (D) of bond financing for a company. a. Requires payments of both periodic interest and par value at maturity. b. Bonds require payment of par value at maturity. C. Bonds do not affect owner control. d. A company earns a lower return with borrowed funds than it pays in interest. e. A company earns a higher return with borrowed funds than it pays in interest. f. Bonds require payment of periodic interest.arrow_forwardWhich of the following statements regarding the private debt market is FALSE? A) Private debt has the advantage that it avoids the cost of registration. B) Bank loans are an example of private debt—debt that is not publicly traded. C) Private debt has the disadvantage of being illiquid. D) The public debt market is larger than the private debt market.arrow_forward
- K What is the term used for a short-term, unsecured debt sold by a large company to investors without using an intermediary? A. unsecured paper B. direct paper OC. junk bond OD. dealer paper O E. commercial paper O Poirarrow_forwardIn the context of handling debt - like items in M&A, what is the most buyer-friendly approach for items representing a hard claim that must be paid post-close? a. Purchase price adjustments b. Escrow accounts c. Insurance policies d. Working capital adjustments e. Debt refinancingarrow_forwardThe line between debt and equity is hard to draw. What does this means?arrow_forward
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