ACC 212 Lecture Notes - Lecture 3: Limited Liability, Stock Split, Employee Benefits

93 views14 pages

orangemarten766

20 Sep 2016

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Financing can be divided into 2 general categories: debt (borrowing from banks or other creditors, equity (issuing stock) The company must consider the advantages of each alternative. Issuing stock is a popular method of financing because of its flexibility provides advantages for the issuing company and the investors (stockholders) Investors are primarily concerned with the return on their investment with stock, the return might be in the form of dividends paid to the investors butt might also be the price appreciation of the stock. Stock is popular because it generally provides a higher rate of return (also higher degree of risk) than can be obtained by creditors who receive interest from lending money. Stock is popular with issuing companies because higher dividends can be paid when the firm is profitable. Interest is generally fixed and is a legal liability that cannot be adjusted when a company experiences lower profitability.

Related Questions

1 - What is economic cost?

A) The opportunity cost less the explicit costs

B) The same as opportunity cost

C) The total of all explicit and implicit costs

D) The total revenue less total costs

2- Why is equity capital generally more expensive than debtfinancing?

A) Dividends fluctuate more than interest rates.

B) Interest on bonds is a legal obligation.

C) Investors expect to be paid more for exposure to higherrisk.

D) Investors have a greater demand for equity investments thanfor debt investments.

3 - An appropriate level of working capital is determined by

A) Balancing the probability of insolvency against theprofitability of current assets and liabilities.

B) Evaluating the capital structure and dividend policy.

C) Evaluating the capital leases used to finance fixedassets.

D) Minimizing long-term debt because it is more expensive thanshort-term debt.

4 - Which of the following objectives is consistent with anoptimal capital structure?

A) Maximize earnings per share

B) Maximize the total value of the entity

C) Minimize the cost of debt

D) Minimize the cost of equity

5 - Lemur Companyâs $10 par value common stock currently sellsat $100 per share. Lemur has retained earnings of $100,000; oncethis is exhausted, Lemur will raise any more necessary equitycapital through a stock issue. Lemur can raise cash by sellingcommon stock at a $2 per share discount with a $3 per sharefloatation cost. Annual cash dividends are $7 per share and are notexpected to change. The estimated after-tax cost of funds raised bylong-term bonds is 5%. The estimated cost of funds raised bypreferred stock is 6%. Lemurâs preferred capital structure is 30%long-term debt, 20% preferred stock, and 50% common stock. Notcounting the $100,000 of retained earnings, the current capitalstructure is Lemurâs preferred structure. What would be Lemurâscost of funds from a common stock sale?

A) 7.00%

B) 7.14%

C) 7.22%

D) 7.37%

6 - Aardvark Companyâs beta coefficient is 1.2. The currentrates for U.S. treasury bonds and expected corporate returns are 7%and 12%, respectively. What is Aardvarkâs approximate expected rateof return using the capital asset pricing model (CAPM)?

A) 8.4%

B) 10.6%

C) 13.0%

D) 14.4%

7- Controllable revenues would be included in the performancereports of which of the following types of responsibilitycenters?

Cost centers ,Investment centers

A) Yes, No

B) Yes, Yes

C) No, No

D) No, Yes

8 - In which of the following situations would there beinelastic demand?

A) A 5 percent price increase results in a 3 percent decrease inthe quantity demanded.

B) A 4 percent price increase results in a 6 percent decrease inthe quantity demanded.

C) A 4 percent price increase results in a 4 percent decrease inthe quantity demanded.

D) A 3 percent price decrease results in a 5 percent increase inthe quantity demanded.

scarletgnu548

Hi there

Please answer the below in 15 mins, urgent. tahnks in advance:

1.The Tom Root Corporation guarantees its product againstdefects for one year. In what year should the corporation reportthe warranty expense?

Select one:

a. The cost of warranty is included in the product's sellingprice, and therefore warranty expense is never recorded.

b. in the year the product is sold

c. Expense is not disclosed because of the Liability forWarranty.

d. in the year the product becomes defective and is repaired orreplaced

2.Financial accounting focuses on the specific needs of decisionmakers external to the organization. Which of the following wouldnot be an external user?

Select one:

a. Internal Revenue Service

b. Vice President - Marketing

c. banks

d. stockholders

When dividends are paid,

Select one:

a. total assets remain the same.

b. total assets will decrease.

c. total assets will increase.

d. stockholders' equity will increase.

The basic rights usually attached to shares of common stockinclude:

Select one:

a. the guaranteed right to receive dividend payments eachyear.

b. the right to determine CEO's pay rate.

c. the right to vote on the matter brought before the annualshareholder meeting.

d. all of the above.

Outstanding shares of stock are:

Select one:

a. shares of stock owned by unknown individuals.

b. issued shares that are still in circulation.

c. also called treasury shares.

d. authorized shares that have not yet been issued.

Par value:

Select one:

a. specifies the exact amount for which an individual share ofstock must be sold.

b. is the maximum amount for which a share of stock may besold.

c. establishes the minimum price for the stock when issued.

d. is an amount determined by the marketplace when shares ofstock are sold.

Which of the following would not be a source of informationabout the financial condition of a company?

Select one:

a. the auditor's report

b. the company's 10K

c. articles in the business press

d. All of the above are sources.

In making investment and lending decisions:

Select one:

a. there is no relationship between risk and rate of return.

b. alternatives with the highest return generally have thelowest risk.

c. alternatives with the highest risk are selected.

d. alternatives with the lowest return generally have the lowestrisk.

8.ith which of the following would creditors be mostconcerned?

Select one:

a. dividends

b. profitability

c. future security prices

d. none of the above

A fiscal year:

Select one:

a. is any twelve consecutive months.

b. ends on December 31.

c. always ends at the end of the month.

d. end on June 30.

10.

The key components in measuring income are:

Select one:

a. assets and liabilities.

b. revenue and liabilities.

c. retained earnings and expenses.

d. revenue and expenses.

e. expenses and assets.

f. revenue and assets.

11.Which of the following help(s) determine when a sale shouldbe included in the income statement?

Select one:

a. recognition principle

b. cost recovery principle

c. matching principle

d. Both a. and c.

12.

The recording of expenses in the same time period as the relatedrevenues is called:

Select one:

a. matching.

b. accuracy.

c. allocation.

d. recognition.

carminetrout975

13. At the end of the first year of operations, the total costof the trading securities portfolio is $245,000. Total fair valueis $250,000. The financial statements should show

A. an addition to an asset of$5,000 in the current assets section and a realized gain of $5,000in "Other revenues and gains."

B. an addition to an asset of$5,000 and an unrealized gain of $5,000 in the stockholders' equitysection.

C. an addition to an asset of$5,000 in the current assets section and an unrealized gain of$5,000 in "Other revenues and gains."

D. an addition to an asset of$5,000 and a realized gain of $5,000.

14. Comanic Corp. has commonstock of $5,400,000, retained earnings of $2,000,000, unrealizedgains on trading securities of $100,000 and unrealized losses onavailable-for-sale securities of $200,000. What is the total amountof its stockholders' equity?

A. $7,400,000

B. $7,200,000

C. $7,500,000

D. $7,300,000

17. Stockholders of a company maybe reluctant to finance expansion through issuing more equitybecause

A. their earnings per share maydecrease.

B. the price of the stock willautomatically decrease.

C. dividends must be paid on aperiodic basis.

D. leveraging with debt is alwaysa better idea.

18. Which of the following is notan advantage of issuing bonds instead of common stock?

A. Income to common shareholdersmay increase.

B. Tax savings result.

C. Stockholder control is notaffected.

D. Earnings per share on commonstock may be lower.

19. A major disadvantageresulting from the use of bonds is that

A. earnings per share may belowered.

B. bondholders have votingrights.

C. interest must be paid on aperiodic basis.

D. taxes may increase.

21. If the market interest rateis 5%, a $10,000, 6%, 10-year bond, that pays interest semiannuallywould sell at an amount

A. less than facevalue.

B. equal to facevalue.

C. greater than facevalue.

D. that cannot bedetermined.

23. If bonds are issued at adiscount, it means that thE

A. bondholder will receiveeffectively less interest than the contractual interestrate.

B. market interest rate is higherthan the contractual interest rate.

C. market interest rate is lowerthan the contractual interest rate.

D. financial strength of theissuer is suspect.

24. In the balance sheet, theaccount, Premium on Bonds Payable, is

A. deducted from bondspayable.

B. classified as a revenueaccount.

C. added to bondspayable.

D. classified as a stockholders'equity account.

25. Bond interest paidis

A. higher when bonds sell at adiscount and lower when bonds sell at a premium.

B. the same whether bonds sell ata discount or a premium.

C. higher when bonds sell at adiscount.

D.lower when bonds sell at apremium.

27. Lowe Company has $1,500,000of bonds outstanding. The unamortized premium is $19,600. If thecompany redeemed the bonds at 101, what would be the gain or losson the redemption?

A. $15,000 loss

B. $4,600 loss

C. $15,000 gain

D. $4,600 gain

28. Robin Corporation retires its$800,000 face value bonds at 104 on January 1, following thepayment of annual interest. The carrying value of the bonds at theredemption date is $829,960. The entry to record the redemptionwill include a

A. debit of $2,040 to Loss onBond Redemption.

B. credit of $32,040 to Premiumon Bonds Payable.

C. credit of $2,040 to Loss onBond Redemption.

D. debit of $32,000 to Premium onBonds Payable.

29. If there is a loss on bondsredeemed early, the

A. loss is debited directly toRetained Earnings.

B. loss is debited to InterestExpense, as a cost of financing.

C. bonds' carrying value was lessthan the redemption price.

D. bonds' carrying value wasgreater than the redemption price.

30. Over the term of the bonds,the balance in the Discount on Bonds Payable accountwill

A. fluctuate up and down if themarket is volatile.

B. increase.

C. decrease.

D. be unaffected until the bondsmature.

ultramarinecrow450

ACC 212 Lecture Notes - Lecture 3: Limited Liability, Stock Split, Employee Benefits

Document Summary

Get access

Related Documents

ACC 212 Lecture Notes - Lecture 4: Profit Margin, Net Income, Asset

ACC 212 Chapter Notes - Chapter 11: Online Copyright Infringement Liability Limitation Act, Treasury Stock, Financial Statement

ACC 100 Lecture Notes - Lecture 9: Dividend, Retained Earnings, Stock Certificate

Related Questions