FINANCIAL ACCOUNTING W/ACCESS >CI<
2nd Edition
ISBN: 9781259999024
Author: SPICELAND
Publisher: MCG CUSTOM
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Textbook Question
Chapter 9, Problem 9.2BP
Explore the impact of leases on the debt to equity ratio (LO9–3, LO9–8)
Chunky Cheese Pizza has $61 million in bonds payable. The bond indenture states that the debt to equity ratio cannot exceed 3.25. Chunky’s total assets are $201 million, and its liabilities other than the bonds payable are $91 million. The company is considering some additional financing through leasing.
Required:
1. Calculate total stockholders’ equity using the balance sheet equation.
2. Calculate the debt to equity ratio.
3. Explain the difference between an operating and a capital lease.
4. The company enters a lease agreement requiring lease payments with a present value of $26 million. Will this lease agreement affect the debt to equity ratio differently if the lease is recorded as an operating lease versus a capital lease?
5. Will entering into the lease cause the debt to equity ratio to be in violation of the contractual agreement in the bond indenture? Show your calculations (a) assuming an operating lease and (b) assuming a capital lease.
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Students have asked these similar questions
Chunky Cheese Pizza has $61 million in bonds payable. The bond agreement states that the debt to equity ratio cannot exceed 3.25. Chunky’s total assets are $201 million, and its liabilities other than the bonds payable are $91 million. The company is considering some additional financing through leasing. Required: 1. Calculate total stockholders’ equity using the balance sheet equation. 2. Calculate the debt to equity ratio.3. The company enters a lease agreement requiring lease payments with a present value of $26 million. Record the lease. 4. Will entering into the lease cause the debt to equity ratio to be in violation of the bond agreement? Determine your answer by calculating the debt to equity ratio after recording the lease.
Chunky Cheese Pizza has $60 million in bonds payable. The bond agreement states that the debt to equity ratio cannot exceed 3.02. Chunky’s total assets are $200 million, and its liabilities other than the bonds payable are $90 million. The company is considering some additional financing through leasing.
Required:
1. Calculate total stockholders’ equity using the balance sheet equation.
Minden Co. has unsecured debt of $1,500,000 that carries interest at 10%. If Minden Co. was able to offer land and buildings with an appraised value of $2 million as security for the debt, the interest rate should *
a) decrease because of reduced risk
b) decrease because of higher profits
c) decrease because of a higher interest cover ratio
d) increase because of risk
e) none of the above
Capacity :
a) cannot be changed in the short run
b) can be changed in the long run
c) is completely under the control of management
d) (a) & (b), but not (c)
e) (a), (b) & (c)
Chapter 9 Solutions
FINANCIAL ACCOUNTING W/ACCESS >CI<
Ch. 9 - What is capital structure? How do the capital...Ch. 9 - Prob. 2RQCh. 9 - How do interest expense and the carrying value of...Ch. 9 - Prob. 4RQCh. 9 - What are bond issue costs? What is an underwriter?Ch. 9 - Why do some companies issue bonds rather than...Ch. 9 - Prob. 7RQCh. 9 - What are convertible bonds? How do they benefit...Ch. 9 - How do we calculate the issue price of bonds? Is...Ch. 9 - Prob. 10RQ
Ch. 9 - If bonds issue at a discount, is the stated...Ch. 9 - Prob. 12RQCh. 9 - Prob. 13RQCh. 9 - Prob. 14RQCh. 9 - 15.If bonds issue at a discount, what happens to...Ch. 9 - Prob. 16RQCh. 9 - Prob. 17RQCh. 9 - Prob. 18RQCh. 9 - 19.If bonds with a face value of 250,000 and a...Ch. 9 - Prob. 20RQCh. 9 - Prob. 9.1BECh. 9 - Prob. 9.2BECh. 9 - Calculate the issue price of bonds (LO95) Ultimate...Ch. 9 - Calculate the issue price of bonds (LO95) Ultimate...Ch. 9 - Calculate the issue price of bonds (LO95) Ultimate...Ch. 9 - Prob. 9.6BECh. 9 - Prob. 9.7BECh. 9 - Prob. 9.8BECh. 9 - Prob. 9.9BECh. 9 - Record bond issue and related annual interest...Ch. 9 - Record bond issue and related annual interest...Ch. 9 - Prob. 9.12BECh. 9 - Prob. 9.13BECh. 9 - Prob. 9.14BECh. 9 - Prob. 9.15BECh. 9 - Prob. 9.16BECh. 9 - Prob. 9.17BECh. 9 - Calculate ratios (LO98) Surfs Up, a manufacturer...Ch. 9 - Prob. 9.1ECh. 9 - Prob. 9.2ECh. 9 - Compare operating and capital teasel (LO93, LO98)...Ch. 9 - listed below are terms and definitions associated...Ch. 9 - Prob. 9.5ECh. 9 - Prob. 9.6ECh. 9 - Prob. 9.7ECh. 9 - Prob. 9.8ECh. 9 - Prob. 9.9ECh. 9 - Prob. 9.10ECh. 9 - Prob. 9.11ECh. 9 - Prob. 9.12ECh. 9 - Prob. 9.13ECh. 9 - Prob. 9.14ECh. 9 - Prob. 9.15ECh. 9 - Prob. 9.16ECh. 9 - Prob. 9.17ECh. 9 - Prob. 9.18ECh. 9 - (LO92, LO98) On January 1, 2018, the general...Ch. 9 - Record and analyze installment notes (LO92) On...Ch. 9 - Explore the impact of leases on the debt to equity...Ch. 9 - Prob. 9.3APCh. 9 - Prob. 9.4APCh. 9 - Understand a bond amortization schedule (LO96) On...Ch. 9 - Prob. 9.6APCh. 9 - Calculate and analyze ratios (LO98) Selected...Ch. 9 - Prob. 9.1BPCh. 9 - Explore the impact of leases on the debt to equity...Ch. 9 - Prob. 9.3BPCh. 9 - Prob. 9.4BPCh. 9 - Prob. 9.5BPCh. 9 - Prob. 9.6BPCh. 9 - Calculate and analyze ratios (LO98) Selected...Ch. 9 - Prob. 9.1APCPCh. 9 - Prob. 9.2APFACh. 9 - The Buckle, Inc. Financial information for Buckle...Ch. 9 - American Eagle Outfitters, Inc., vs. The Buckle,...Ch. 9 - Ethics The Tony Hawk Skate Park was built in early...Ch. 9 - Prob. 9.7APWCCh. 9 - Prob. 9.8APEM
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