Question 1

Information related to Lamar Co.for the years ending December 31, 2009 and 2008 follows:   Dividends declared for 2009 totaled $20,000.How much was generated through operations?

Accepted Answer

B

Question 2

Haggar Corp's $1 par value, common stock was selling for $20 per share.Haggar Corp's owners' equity accounts were as follows:

How many shares of common stock are outstanding?

Accepted Answer

B

Question 3

Identify the effect(s) on the debt/equity ratio (a through c) as a result of each transaction numbered below.You may use each letter more than once or not at all.
-Acquired the use of equipment under a capital lease

Accepted Answer

Acquiring the use of equipment under a capital lease is recognized on the balance sheet as both an asset and a corresponding liability. This increases the total debt of the company without immediately affecting the equity portion, thus increasing the debt/equity ratio.

Question 4

Identify the effect(s) on the debt/equity ratio (a through c) as a result of each transaction numbered below.You may use each letter more than once or not at all.
-Paid the interest portion of the payment on a capital lease

Accepted Answer

The answer of Identify the effect(s) on the debt/equity ratio...

Question 5

Identify the effect(s) on the debt/equity ratio (a through c) as a result of each transaction numbered below.You may use each letter more than once or not at all.
-Paid the principal portion of the payment on a capital lease

Accepted Answer

Paying the principal portion of a capital lease reduces the liability (debt) without affecting equity, thus decreasing the debt/equity ratio.

Question 6

Identify the effect(s) on the debt/equity ratio (a through c) as a result of each transaction numbered below.You may use each letter more than once or not at all.
-Acquired the use of equipment under an operating lease

Accepted Answer

Acquiring the use of equipment under an operating lease does not add any liability to the balance sheet; therefore, it does not affect the debt/equity ratio.

Question 7

Identify the effect(s) on the debt/equity ratio (a through c) as a result of each transaction numbered below.You may use each letter more than once or not at all.
-Payment required on an operating lease

Accepted Answer

The answer of Identify the effect(s) on the debt/equity ratio...

Question 8

Management wishes to obtain financing.For each attribute/characteristic listed in 1 through 5, determine which type of financing it describes from management's perspective .
-No tax savings

Accepted Answer

Equity financing does not provide tax savings because dividends paid to shareholders are not deductible from corporate income, unlike interest payments on debt which can reduce taxable income.

Question 9

Management wishes to obtain financing.For each attribute/characteristic listed in 1 through 5, determine which type of financing it describes from management's perspective .
-Credit rating effects

Accepted Answer

Credit rating effects are more directly associated with debt financing because the terms and interest rates of loans or bonds issued by a company can be significantly influenced by its credit rating. A higher credit rating usually results in lower interest costs, while a lower rating can increase borrowing costs. Equity financing, on the other hand, involves selling shares of the company and does not directly impact the company's credit rating.

Question 10

Management wishes to obtain financing.For each attribute/characteristic listed in 1 through 5, determine which type of financing it describes from management's perspective .
-Contractual restrictions

Accepted Answer

Contractual restrictions are more commonly associated with debt financing because lenders often impose certain conditions or covenants on borrowers to protect their investment. These can include restrictions on further borrowing, requirements for financial performance, or limitations on dividend payments, which are not typically found in equity financing agreements.

Question 11

Management wishes to obtain financing.For each attribute/characteristic listed in 1 through 5, determine which type of financing it describes from management's perspective .
-Contractual future payments

Accepted Answer

Contractual future payments are characteristic of debt financing because the company is obligated to make fixed payments on a schedule, such as interest payments and the repayment of the principal amount borrowed.

Question 12

Management wishes to obtain financing.For each attribute/characteristic listed in 1 through 5, determine which type of financing it describes from management's perspective .
-Cash flows are discretionary

Accepted Answer

Cash flows being discretionary is a characteristic of equity financing because in equity financing, dividends are paid at the discretion of the company's management, unlike debt financing where interest payments are obligatory.

Question 13

Select the effect (a, b, or c) that each transaction listed in would most likely cause on the debt/equity ratio.
-Issued debt to finance the purchase of property

Accepted Answer

Issuing debt increases the total debt of a company, while equity remains unchanged, leading to an increase in the debt/equity ratio.

Question 14

Select the effect (a, b, or c) that each transaction listed in would most likely cause on the debt/equity ratio.
-Issued common stock to finance the purchase of property

Accepted Answer

Issuing common stock increases equity without changing the total debt, which results in a decrease in the debt/equity ratio.

Question 15

Select the effect (a, b, or c) that each transaction listed in would most likely cause on the debt/equity ratio.
-Used money resulting from profits to finance the purchase of property

Accepted Answer

The transaction involves using profits, which are equity, to finance the purchase of property. This does not change the debt/equity ratio.

Question 16

Select the effect (a, b, or c) that each transaction listed in would most likely cause on the debt/equity ratio.
-Declared dividends to shareholders

Accepted Answer

Declaring dividends to shareholders reduces equity because dividends are paid out of retained earnings, which is a component of shareholders' equity. When equity decreases while debt remains constant, the debt/equity ratio increases.

Question 17

Select the effect (a, b, or c) that each transaction listed in would most likely cause on the debt/equity ratio.
-Paid the previously declared dividends

Accepted Answer

The answer of Select the effect (a, b, or c)...

Question 18

Select the effect (a, b, or c) that each transaction listed in would most likely cause on the debt/equity ratio.
-Skipped dividends on cumulative preferred stock

Accepted Answer

Skipping dividends on cumulative preferred stock does not change the debt/equity ratio because it does not affect the total amount of debt or the total amount of equity. It merely postpones the payment of dividends to preferred shareholders.

Question 19

Select the effect (a, b, or c) that each transaction listed in would most likely cause on the debt/equity ratio.
-Declared and paid a 10% stock dividend

Accepted Answer

Declaring and paying a stock dividend does not affect the debt/equity ratio because it simply shifts part of the equity from retained earnings to common stock without changing the total equity or affecting the total debt.

Question 20

Select the effect (a, b, or c) that each transaction listed in would most likely cause on the debt/equity ratio.
-Declared and paid a 200% stock dividend

Accepted Answer

A 200% stock dividend results in the issuance of additional shares to existing shareholders, which does not affect the total equity (just redistributes it among a larger number of shares) nor does it change the total debt. Therefore, the debt/equity ratio remains unchanged.

Quiz 8: Accounting for Financing Transactions

Information related to Lamar Co.for the years ending December 31, 2009 and 2008 follows: Dividends declared for 2009 totaled $20,000.How much was generated through operations?

Haggar Corp's $1 par value, common stock was selling for $20 per share.Haggar Corp's owners' equity accounts were as follows: How many shares of common stock are outstanding?

Identify the effect(s) on the debt/equity ratio (a through c) as a result of each transaction numbered below.You may use each letter more than once or not at all. -Acquired the use of equipment under a capital lease

Identify the effect(s) on the debt/equity ratio (a through c) as a result of each transaction numbered below.You may use each letter more than once or not at all. -Paid the interest portion of the payment on a capital lease

Identify the effect(s) on the debt/equity ratio (a through c) as a result of each transaction numbered below.You may use each letter more than once or not at all. -Paid the principal portion of the payment on a capital lease

Identify the effect(s) on the debt/equity ratio (a through c) as a result of each transaction numbered below.You may use each letter more than once or not at all. -Acquired the use of equipment under an operating lease

Identify the effect(s) on the debt/equity ratio (a through c) as a result of each transaction numbered below.You may use each letter more than once or not at all. -Payment required on an operating lease

Management wishes to obtain financing.For each attribute/characteristic listed in 1 through 5, determine which type of financing it describes from management's perspective . -No tax savings

Management wishes to obtain financing.For each attribute/characteristic listed in 1 through 5, determine which type of financing it describes from management's perspective . -Credit rating effects

Management wishes to obtain financing.For each attribute/characteristic listed in 1 through 5, determine which type of financing it describes from management's perspective . -Contractual restrictions

Management wishes to obtain financing.For each attribute/characteristic listed in 1 through 5, determine which type of financing it describes from management's perspective . -Contractual future payments

Management wishes to obtain financing.For each attribute/characteristic listed in 1 through 5, determine which type of financing it describes from management's perspective . -Cash flows are discretionary

Select the effect (a, b, or c) that each transaction listed in would most likely cause on the debt/equity ratio. -Issued debt to finance the purchase of property

Select the effect (a, b, or c) that each transaction listed in would most likely cause on the debt/equity ratio. -Issued common stock to finance the purchase of property

Select the effect (a, b, or c) that each transaction listed in would most likely cause on the debt/equity ratio. -Used money resulting from profits to finance the purchase of property

Select the effect (a, b, or c) that each transaction listed in would most likely cause on the debt/equity ratio. -Declared dividends to shareholders

Select the effect (a, b, or c) that each transaction listed in would most likely cause on the debt/equity ratio. -Paid the previously declared dividends

Select the effect (a, b, or c) that each transaction listed in would most likely cause on the debt/equity ratio. -Skipped dividends on cumulative preferred stock

Select the effect (a, b, or c) that each transaction listed in would most likely cause on the debt/equity ratio. -Declared and paid a 10% stock dividend

Select the effect (a, b, or c) that each transaction listed in would most likely cause on the debt/equity ratio. -Declared and paid a 200% stock dividend