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- Assume that a corporation needs to enter the private debt market to raise funds for plant expansion. The corporation expects debt covenants to place restrictions on the levels of its current ratio and total-liabilities-to-assets ratio. Considering the accounts that comprise these ratios, give examples of accounting estimates, accounting judgments, and structured transactions that the lender should examine closely.(a) From what sources might a corporation obtain fundsthrough long-term debt? (b) What is a bond indenture?What does it contain? (c) What is a mortgage?What is the relationship of Debt (Loans) to Borrowers to Financial Intermediaries?
- Discuss the factors that a Company should consider when choosing a source of debt finance and the factors that may be considered by providers of finance in deciding how much to lend to the company.What are some factors that financial managers consider whenchoosing the maturity structure of their debt?The application of the present value factors in the computation of carrying amounts of bonds payable is a representation of what accounting principle? Conservatism Matching Principle Time Value of Money Materiality
- How do creditors assess risk when lending funds to a company? a. By establishing covenants in the borrowing agreement b. By monitoring the borrower’s debt-to-equity ratio c. By checking a prospective borrower’s credit rating before lending to it d. All of the above answers are correct.Provide an explanation of whether it is advantageous for a bank to classify debt investments as “held to maturity “or “available for sale” if the required return by the market declines? What impact will this have on the bank's balance sheet and net income?1. Assuming the investment is appropriately recognized as a financial asset intended to collect contractual cash flows and also to sell the bonds in open market: How much interest income is to be recognized in 2021?
