PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 24, Problem 13PS
Covenants Alpha Corp. is prohibited from issuing more senior debt unless net tangible assets exceed 200% of senior debt. Currently, the company has outstanding $100 million of senior debt and has net tangible assets of $250 million. How much more senior debt can Alpha Corp. issue?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Good Company has an overdue notes payable of P1,500,000 to Better Company. Accrued interest on the notes amounts to P150,000. Good entered into an agreement with Better Company to exchange equity securities in settlement for the debt. Good Company is issuing 20,000 shares of its P50 par value ordinary shares. The ordinary shares is currently selling at P65. How much is the gain on debt restructuring?
a.) P0
b.) P250,000
c.) P350,000
d.) P650,000
21. Seal Company is experiencing financial difficulty and is negotiating debt restructuring with its creditor to relieve its financial stress. Seal has a P2,500,000 note payable to United Bank. The bank accepted an equity interest in Seal Company in the form of 200,000 ordinary shares quoted at P12 per share. The par value is P10 per share. The fair value of the note payable on the date of restructuring is P2,200,000. What amount should be recognized as gain from debt extinguishment as a result of the "equity swap”? *
a. 400,000
b. 100,000
c. 500,000
d. 200,000
Refer to MC No. 21. What amount should be recognized as share premium from the issuance of the shares? *
a. 500,000
b. 100,000
c. 400,000
d. 200,000
Rell Corporation reports under IFRS No. 9. Rell has an investment in Tirish, Inc. bonds that Rell accounts for atamortized cost, given that the bonds pay only interest and principal and Rell’s business purpose is to hold the bondsto maturity. Rell purchased the bonds for €10,000,000. As of December 31, 2018, Rell calculates €750,000 ofcredit losses expected for default events occurring during 2019 and €450,000 of credit losses expected for defaultevents occurring after 2019. Required:1. Assume the Tirish bonds have not had a significant increase in credit risk. Prepare the journal entry to recordany impairment loss as of December 31, 2018.2. Assume the Tirish bonds have had a significant increase in credit risk. Prepare the journal entry to record anyimpairment loss as of December 31, 2018.3. Assume the Tirish bonds have not had a significant increase in credit risk, and that as of December 31, 2019,Rell calculates €650,000 of credit losses expected for default events occurring during…
Chapter 24 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 24 - Bond terms Use Table 24.1 (but not the text) to...Ch. 24 - Bond terms Look at Table 24.1: a. The AMAT bond...Ch. 24 - Bond terms Select the most appropriate term from...Ch. 24 - Prob. 5PSCh. 24 - Bond terms Bond prices can fall either because of...Ch. 24 - Security and seniority a. As a senior bondholder,...Ch. 24 - Prob. 8PSCh. 24 - Prob. 9PSCh. 24 - Security and seniority a. Residential mortgages...Ch. 24 - Sinking funds For each of the following sinking...
Ch. 24 - Call provisions a. Look at Table 24.1. Suppose...Ch. 24 - Covenants Alpha Corp. is prohibited from issuing...Ch. 24 - Prob. 14PSCh. 24 - Private placements Explain the three principal...Ch. 24 - Convertible bonds True or false? a. Convertible...Ch. 24 - Convertible bonds Maple Aircraft has issued a 4%...Ch. 24 - Convertible bonds The Surplus Value Company had 10...Ch. 24 - Prob. 19PSCh. 24 - Convertible bonds Iota Microsystems 10%...Ch. 24 - Convertible bonds Zenco Inc. is financed by 3...Ch. 24 - Prob. 22PSCh. 24 - Prob. 23PSCh. 24 - Bank loans, commercial paper, and medium-term...Ch. 24 - Prob. 25PSCh. 24 - Tax benefits Dorlcote Milling has outstanding a 1...Ch. 24 - Convertible bonds This question illustrates that...Ch. 24 - Prob. 28PS
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Seal Company is experiencing financial difficulty and is negotiating debt restructuring with its creditor to relieve its financial stress. Seal has a P2,500,000 note payable to United Bank. The bank accepted an equity interest in Seal Company in the form of 200,000 ordinary shares quoted at P12 per share. The par value is P10 per share. The fair value of the note payable on the date of restructuring is P2,200,000. What amount should be recognized as gain from debt extinguishment as a result of the "equity swap”? a. 400,000 b. 100,000 c. 500,000 d. 200,000arrow_forwardShanghai Company is unable to meet interest payments and fund requirements to retire its P1,500,000 bonds payable. Accrued interest on the bonds amounted to P150,000. The bonds are held by Spaghetti Investments, Inc. To prevent bankruptcy, Shanghai Company entered into an agreement with Spaghetti Financing, Inc. to exchange equity securities for the debt. Shanghai Company is issuing 20,000 shares of its P50 par value ordinary shares. The ordinary share is currently selling at P65. The gain on debt restructuring is A. 250,000 B. 350,000 C. 650,000 D. 0arrow_forwardSeal Company is experiencing financial difficulty and is negotiating debt restructuring with its creditor to relieve its financial stress. Seal has a P2,500,000 note payable to United Bank. The bank accepted an equity interest in Seal Company in the form of 200,000 ordinary shares quoted at P12 per share. The par value is P10 per share. The fair value of the note payable on the date of restructuring is P2,200,000. What amount should be recognized as share premium from the issuance of the shares? a. 500,000 b. 100,000 c. 400,000 d. 200,000arrow_forward
- 8 Company A invests in a $55 million bond. It was purchased at par and is accounted for using amortized cost. At year-end Company A believes that there is a 5% the company will not collect 50% of the face value over its life. Company A uses the expected loss impairment model. Discuss any financial reporting issues (should we recognize them or not recognize them) and provide any recommendations on how to handle this situation.arrow_forwardKingbird Company has the following investments as of December 31, 2020: Investments in common stock of Laser Company $1,430,000 Investment in debt securities of FourSquare Company $3,210,000 In both investments, the carrying value and the fair value of these two investments are the same at December 31, 2020. Kingbird’s stock investments does not result in significant influence on the operations of Laser Company. Kingbird’s debt investment is considered held-to-maturity. At December 31, 2021, the shares in Laser Company are valued at $1,060,000; the debt investment securities of FourSquare are valued at $2,330,000 and are considered impaired. Prepare the journal entry to record the impairment of the debt securities at December 31, 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and…arrow_forwardKingbird Company has the following investments as of December 31, 2020: Investments in common stock of Laser Company $1,430,000 Investment in debt securities of FourSquare Company $3,210,000 In both investments, the carrying value and the fair value of these two investments are the same at December 31, 2020. Kingbird’s stock investments does not result in significant influence on the operations of Laser Company. Kingbird’s debt investment is considered held-to-maturity. At December 31, 2021, the shares in Laser Company are valued at $1,060,000; the debt investment securities of FourSquare are valued at $2,330,000 and are considered impaired. Prepare the journal entry to record the impairment of the debt securities at December 31, 2021. Assume that the debt investment in FourSquare Company was available-for-sale and the expected credit loss was $980,000. Prepare the journal entry to record this impairment on December 31, 2021.arrow_forward
- Elaina Company has the following investments as of December 31, 2020: Investments in common stock of Laser Company $1,430,000 Investment in debt securities of FourSquare Company $3,090,000 In both investments, the carrying value and the fair value of these two investments are the same at December 31, 2020. Elaina’s stock investments does not result in significant influence on the operations of Laser Company. Elaina’s debt investment is considered held-to-maturity. At December 31, 2021, the shares in Laser Company are valued at $990,000; the debt investment securities of FourSquare are valued at $2,310,000 and are considered impaired. Prepare the journal entry to record the impairment of the debt securities at December 31, 2021.arrow_forwardElaina Company has the following investments as of December 31, 2020: Investments in common stock of Laser Company $1,500,000 Investment in debt securities of FourSquare Company $3,300,000 In both investments, the carrying value and the fair value of these two investments are the same at December 31, 2020. Elaina's stock investments does not result in significant influence on the operations of Laser Company. Elaina's debt investment is considered held-to-maturity. At December 31, 2021, the shares in Laser Company are valued at $1,100,000; the debt investment securities of FourSquare are valued at $2,500,000 and are considered impaired. Instructions a. Prepare the journal entry to record the impairment of the debt securities at December 31, 2021. b. Assuming the fair value of the Laser shares is $1,400,000 and the value of its debt investment is $2,950,000, what entries, if any, should be recorded in 2022 related to impairment? c. Assume that the debt investment in…arrow_forwardABC Company's bonds have a provision which stipulates that the ratio of senior debt to total assets will never rise above 45%. The company is at the limit of that ratio and it wishes to issue still another $25 million in senior debt. How much additional equity capital must it raise to comply with this restrictive provision?arrow_forward
- (Entries for Zero-Interest-Bearing Debt) On January 1, 2014, Fisher Company makes the two following acquisitions. 1. Purchases land having a fair market value of $800,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $1,175,464. 2. Purchases equipment by issuing a 4%, 8-year promissory note having a maturity value of $350,000 (interest payable annually). The company has to pay 8% interest for funds from its bank. Instructions: A) Record the two journal entries that should be recorded by Fisher Company for the two purchases on January 1, 2014 B) Record the interest at the end of the first two years on both notes using the effective-interest method.arrow_forwardProvide solutions On January 1, 20x1, Dagul Co. acquired 10%, ₱4,000,000 bonds for ₱3,807,853. The principal is due on January 1, 20x4 but interest is due annually starting December 31, 20x1. The yield rate on the bonds is 12%. On July, 1 20x1, Dagul Co. changed its business model. It was ascertained that the investment in bonds at amortized cost should be reclassified to held for trading securities on reclassification date. The bonds were quoted at 102, 103 and 104 on July 1, 20x1, December 31, 20x1 and January 1, 20x2, respectively. How much is the gain (loss) on reclassification on January 1, 20x2? a. 243,676 b. 295,205 c. 255,205 d. 0arrow_forwardAyayai Company has the following investments as of December 31, 2020: Investments in common stock of Laser Company $1,380,000 Investment in debt securities of FourSquare Company $3,530,000 In both investments, the carrying value and the fair value of these two investments are the same at December 31, 2020. Ayayai’s stock investments does not result in significant influence on the operations of Laser Company. Ayayai’s debt investment is considered held-to-maturity. At December 31, 2021, the shares in Laser Company are valued at $1,020,000; the debt investment securities of FourSquare are valued at $2,780,000 and are considered impaired. 1. Prepare the journal entry to record the impairment of the debt securities at December 31, 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) 2. Assuming the fair value of the Laser shares is…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Fundamentals Of Financial Management, Concise Edi...FinanceISBN:9781337902571Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Fundamentals Of Financial Management, Concise Edi...
Finance
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Financial instruments products; Author: fi-compass;https://www.youtube.com/watch?v=gvxozM3TUIg;License: Standard Youtube License