Question

Saffron Industries most recent balance sheet reports total assets of $42,000,000, total liabilities of $16,000,000 and stockholders' equity of $26,000,000. Management is considering using $3,000,000 of excess cash to prepay $3,000,000 of outstanding bonds. What effect, if any, would prepaying the bonds have on the company's debt-to-equity ratio?

Remember that the Debt-to-Equity Ratio is: Total Liabilities / Total Stockholder's Equity

Group of answer choices

Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .57.

Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .50.

Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .50.

Prepaying the debt would cause the firm's debt-to-equity ratio to remain unchanged.

Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .57.

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Question 25 pts

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What amount of interest expense will be included in the first annual payment?

Group of answer choices

$37,258

$25,000

$232,742

$17,258

$20,000

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Question 35 pts

On January 1, Year 1, KASE issues $200,000 of 8%, 5-year bond, dated 1/1/20X1, which matures 1/1/20X6, and must pay interest twice a year (semi-annually) every first of July and first of January. The Cash balance at the end of July 1, 20X3 is:

Warning: When doing calculations, it is recommended to use Excel. If you are calculating by hand, do not round to the nearest whole number until you get to the final answer

Enter your answer as rounded to the nearest whole number, for example:

if the answer is 100, enter 100

if the answer is 100.49, enter 100

if the answer is 100.5, enter 101

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Question 45 pts

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What is the journal entry to record the first annual payment?

Group of answer choices

Debit Interest Expense $20,000; debit Notes Payable $17,258; credit Cash $37,258.

Debit Interest Expense $20,000; credit Cash $20,000.

Debit Interest Expense $37,258; credit Cash $37,258.

Debit Cash $250,000; debit Interest Expense $37,258; credit Notes Payable $287,258.

Debit Interest Expense $20,000; debit Interest Payable $17,258; credit Cash $37,258.

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Question 55 pts

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What amount of principal will be included in the first annual payment?

Group of answer choices

$25,000

$232,742

$37,258

$20,000

$17,258

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Question 65 pts

A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring equal annual payments each December 31 of $32,136. What journal entry would the issuer record for the first payment?

Group of answer choices

Debit Interest Expense $11,250; debit Notes Payable $20,886; credit Cash $32,136.

Debit Notes Payable $32,136; debit Interest Payable $11,250; credit Cash $43,386.

Debit Notes Payable $11,250; credit Cash $11,250.

Debit Interest Expense $7,136; debit Notes Payable $25,000; credit Cash $32,136.

Debit Notes Payable $32,136; credit Cash $32,136.

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Question 75 pts

A company issued 8%, 15-year bonds with a par value of $550,000 that pay interest semiannually. The market rate on the date of issuance was 8%. The journal entry to record each semiannual interest payment is:

Group of answer choices

Debit Bond Interest Expense $550,000; credit Cash $550,000.

Debit Bond Interest Payable $22,000; credit Cash $22,000.

Debit Bond Interest Expense $22,000; credit Cash $22,000.

Debit Bond Interest Expense $44,000; credit Cash $44,000.

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Question 85 pts

A bondholder that owns a $1,000, 10%, 10-year bond has:

Group of answer choices

The right to receive $10 per year until maturity.

Ownership rights in the issuing company.

The right to receive $1,000 at maturity.

The right to receive dividends of $1,000 per year.

The right to receive $10,000 at maturity.

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Question 95 pts

On January 1, Year 1, Stratton Company borrowed $100,000 on a 10-year, 7% installment note payable. The terms of the note require Stratton to pay 10 equal payments of $14,238 each December 31 for 10 years. The required general journal entry to record the payment on the note on December 31, Year 2 is:

Group of answer choices

Debit Interest Expense $6,493; debit Notes Payable $7,745; credit Cash $14,238.

Debit Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238.

Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238.

Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238.

Debit Notes Payable $14,238; credit Cash $14,238.

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Question 105 pts

On January 1, Year 1, KASE borrowed $200,000 on a 6-year, 7% installment note payable. The terms of the note require KASE to pay 6 equal payments each December 31 for 6 years. The Notes Payable balance on December 31, Year 5 is:

Warning: When doing calculations, it is recommended to use Excel. If you are calculating by hand, do not round to the nearest whole number until you get to the final answer

Enter your answer as rounded to the nearest whole number, for example:

if the answer is 100, enter 100

if the answer is 100.49, enter 100

if the answer is 100.5, enter 101

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Question 115 pts

On January 1, Year 1, KASE issues $200,000 of 8%, 5-year bond, dated 1/1/20X1, which matures 1/1/20X6, and must pay interest twice a year (semi-annually) every first of July and first of January. The cumulative Bond Interest Expense through December 31, 20X4 is:

Warning: When doing calculations, it is recommended to use Excel. If you are calculating by hand, do not round to the nearest whole number until you get to the final answer

Enter your answer as rounded to the nearest whole number, for example:

if the answer is 100, enter 100

if the answer is 100.49, enter 100

if the answer is 100.5, enter 101

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Question 125 pts

Seedly Corporation's most recent balance sheet reports total assets of $35,000,000 and total liabilities of $17,500,000. Management is considering issuing $5,000,000 of par value bonds (at par) with a maturity date of ten years and a contract rate of 7%. What effect, if any, would issuing the bonds have on the company's debt-to-equity ratio?

Remember that the Debt-to-Equity Ratio is: Total Liabilities / Total Stockholder's Equity

Group of answer choices

Issuing the bonds would cause the firm's debt-to-equity ratio to improve from 1.0 to 1.3.

Issuing the bonds would cause the firm's debt-to-equity ratio to remain unchanged.

Issuing the bonds would cause the firm's debt-to-equity ratio to improve from .5 to .8.

Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from 1.0 to 1.3.

Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from .5 to .8.

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Question 135 pts

On January 1, Year 1, KASE borrowed $200,000 on a 6-year, 7% installment note payable. The terms of the note require KASE to pay 6 equal payments each December 31 for 6 years. The Cash payment on December 31, Year 2 is:

Warning: When doing calculations, it is recommended to use Excel. If you are calculating by hand, do not round to the nearest whole number until you get to the final answer

Enter your answer as rounded to the nearest whole number, for example:

if the answer is 100, enter 100

if the answer is 100.49, enter 100

if the answer is 100.5, enter 101

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Question 145 pts

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What is the appropriate journal entry to record the issuance of the note?

Group of answer choices

Debit Cash $250,000; credit Notes Payable $250,000.

Debit Notes Payable $250,000; credit Cash $250,000.

Debit Cash $250,000; debit Interest Expense $37,258; credit Notes Payable $287,258.

Debit Cash $287,258; credit Interest Payable $37,258; credit Notes Payable $250,000.

Debit Cash $37,258; credit Notes Payable $37,258.

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Question 155 pts

On January 1, Year 1, KASE borrowed $200,000 on a 6-year, 7% installment note payable. The terms of the note require KASE to pay 6 equal payments each December 31 for 6 years. The cumulative Interest Expense through December 31, Year 4 is:

Warning: When doing calculations, it is recommended to use Excel. If you are calculating by hand, do not round to the nearest whole number until you get to the final answer

Enter your answer as rounded to the nearest whole number, for example:

if the answer is 100, enter 100

if the answer is 100.49, enter 100

if the answer is 100.5, enter 101

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Question 165 pts

This is a free-response question, which will be graded after all HW submissions are in. Your HW grade will not reflect these 5 points until this portion is graded by the TA's

Prompt:

KASE is in need of $300,000 to build a new prototype. Upon looking at its options, it finds it can get $300,000 in one of two ways:

• On 1/1/20X1, issuing a $300,000 of 2.5%, 4-year bond, dated 1/1/20X1, which matures 1/1/20X5, and must pay interest twice a year (semi-annually) every first of July and first of January
• On 1/1/20X1, borrowing $300,000 on a 6-year, 5.5% installment note payable. The terms of the note require KASE to pay 6 equal payments each December 31 for 6 years

Question:

If KASE wanted the most pre-tax Income Statement profit over 6 years, which way would she choose, and why?

Answer 1

Question 1:-

Based on the information and options available in the question, prepaying the bond would have Option C is the correct answer. Prepaying the bond would cause the firm's debt-to-equity ratio to improve from 0.62 to 0.50.

Current Debt to equity ratio = Total liabilities / Shareholders equity = $16,000,000/$26,000,000 = 0.62

Revised Debt to equity ratio = $13,000,000 / $26,000,000 = 0.5

Please note , when bonds are paid, there is a decrease of $3,000,000 in the cash available and also the Assets = Liabilities + Equity ; Accordingly, prepaying the debts would have the following effect on the accounting equation:- $39,000,000 = $13,000,000 + $26,000,000(plug for equity). Also prepaying the bond has caused the Debt to equity ratio to improve because the company has fewer debts/liabilities for every $ of the shareholders equity it possesses. Hence, Option C is the correct answer.

Option A is incorrect. The shareholders equity is $26,000,000 and not $23,000,000 based on the observations above. Additionally, the ratio has not worsened and hence the option is incorrect.

Option B is incorrect. The Debt to equity ratio has improved and not worsened. Hence this option is incorrect.

Option D is incorrect. The Debt to equity ratio would changed because of the above changes and hence this option is incorrect.

Option E is incorrect. While the debt to equity ratio has improvement, the revised debt to equity ratio is 0.50 and hence 0.57 is incorrect.

Kindly request you to post the remaining questions separately so that we can answer them as well. All the best and please let me know if you have any questions via comments :)