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Click in the boxed areas to the right of each item below. A pick list will launch. Click on the pick list icon to reveal a drop-down menu of choices. Select the correct choice to turn the boxed area green. Assuming that assets exceed debt, using cash to pay off debt will do what to the debt to assets ratio? Issuing additional shares of stock in exchange for debt will usually cause the debt to equity ratio to do what? If the interest rate on a company's debt is decreased, its times interest earned ratio will usually do what? Entering into a binding contractual commitment will necessarily trigger a journal entry. Which type of lease will result in the recognition of interest expense on the books of the lessee? Click in the boxed areas to the right of each item below. A pick list will launch. Click on the pick list icon to reveal a drop-down menu of choices. Select best choice to turn the boxed area green. Specifies terms of the bond issue Includes claims to specific assets in the event of default No longer in common use Portions mature on various dates over time Includes an equity option feature Technical distinction prohibiting any early repayment Party charged with enforcing bond terms Assuming that assets exceed debt, using cash to pay off debt will do what to the debt to assets ratio? Decrease None of the above. Increase No Change 2 Issuing additional shares of stock in exchange for debt will usually cause the debt to equity ratio to do what? Increase None of the above. No change Decrease 3 0.5 If the interest rate on a company's debt is decreased, its times interest earned ratio will usually do what? Decrease None of the above. Increase No Change 4 0.5 Entering into a binding contractual commitment will necessarily trigger a journal entry. True False 5 0.5 Which type of lease will result in the recognition of interest expense on the books of the lessee? Operating Lease Capital Lease Purchasing Lease Commitment Lease Specifies terms of the bond issue Commitment Indenture Agreement Debenture 7 0.5 Includes claims to specific assets in the event of default Unsecured Increases Asset Increases Liability Secured 8 0.5 Portions mature on various dates over time Permanent Bond Convertible Bond Sinking Bond Serial Bond 9 0.5 What is the Technical distinction prohibiting any early repayment of Bond Convertible Callable Redeemable Nonredeemable 10 0.5 The mixture of liabilities and stockholders' equity a business uses is called its capital structure. True False The mixture of liabilities and stockholders' equity a business uses is called its capital structure. True False 11 0.5 Interest expense incurred when borrowing money, as well as dividends paid to stockholders, are taxdeductible. True False 12 0.5 Debt financing refers to borrowing money from creditors. True False 13 0.5 Equity financing refers to profits generated by operations. True False 14 0.5 Three primary sources of long-term debt financing are notes, leases, and bonds. True False 15 0.5 Assume that a $10,000, five-year, 8% term note, is issued on October 1,203 : what is the Journal Entry Assume that a $10,000, five-year, 8% term note, is issued on October 1,203 : what is the Journal Entry Note Payable 10,000 Cash 10,000 Bond Payable 10,000 Cash 10,000 Accounts Payable 10,000 Cash Payable 10,000 Cate 10,000 16 Compounding simply means that the investment is growing with accumulated interest and earning interest on the previously accrued interest. True False 17 0.5 Convertible bonds provide a company with the option of buying back the debt at a prearranged price before its scheduled maturity. If interest rates go down, the company may not want to be saddled with the higher cost obligations and can escape the obligation by calling the debt. J True False 18 0.5 Bonds that cannot be paid off earlier are sometimes called nonredeemable. Be careful not to confuse nonredeemable with nonrefundable. Nonrefundable bonds can be paid off early, so long as the payoff money is generated from business operations rather than an alternative borrowing arrangement. True False 19 0.5 A bond payable is just a promise to pay a series of payments over time (the interest component) and a fixed amount at maturity (the face amount). Thus, it is a blend of an annuity (the interest) and a lump-sum payment (the face). True False 20 If ABC Inc. issues 100 of the 8%,5-year bonds when the market rate of interest is only 6%, then the cash received is $108,530 (Issued Bond at a Discount). True -alse 0.5
