Which of the following is an advantage of bond financing over common stock financing?
Explanation
This question tests the understanding of the comparative advantages of using debt (bond) financing versus equity (stock) financing, a key strategic decision for companies.
Other questions
According to the definition provided in Chapter 10, what is a current liability?
Cole Williams Co. signs a $100,000, 12 percent, four-month note on September 1, 2019. If the company prepares annual financial statements, what is the amount of interest expense accrued at December 31, 2019?
Cooley Grocery does not segregate sales and sales taxes in its cash register. The total receipts for a day are $10,600, and the sales tax rate is 6 percent. What is the amount that should be credited to Sales Revenue?
Superior University sells 10,000 season football tickets at $50 each for its five-game home schedule. What is the journal entry to record the revenue after the first game is completed?
Bonds that are issued against the general credit of the borrower are known as:
What is the primary purpose of a bond indenture?
If Candlestick Inc. issues $100,000, five-year, 10 percent bonds for $98,000, how would this bond be presented on the balance sheet at the date of issuance?
When Candlestick Inc. sells its $100,000, 10 percent bonds for $102,000, the sale causes the total cost of borrowing to be:
R & B Inc. issued $500,000, 10-year bonds at a discount. Prior to maturity, when the carrying value of the bonds is $496,000, the company redeems the bonds at 98. What is the result of this redemption?
Porter Technology Inc. issues a $500,000, 8 percent, 20-year mortgage note. The terms provide for annual installment payments of $50,926. What is the reduction in principal for the first year?
Which ratio measures the percentage of total assets provided by creditors?
If General Motors has total liabilities of $141,653 million and total assets of $177,677 million, what is its debt to assets ratio?
Using the straight-line method, what is the bond discount amortization per period for a $100,000, five-year bond issued for $98,000?
Under the effective-interest method of amortization, the amount of interest expense recorded for a bond issued at a discount will:
What is the primary characteristic of a long-term liability?
A payroll deduction that is NOT an employer payroll tax is:
Candlestick Inc. issues $100,000, 10 percent, five-year bonds on January 1, 2019, for $102,000. Using the straight-line method, what is the entry to record the accrual of interest and amortization of premium on December 31, 2019?
A bond's market price is determined by the present value of:
What is the primary reason companies use the effective-interest method of amortization instead of the straight-line method?
If a bond's contractual interest rate is 10 percent and the market interest rate is 8 percent, the bond will sell at:
The carrying value of a bond issued at a premium will:
The liability for payroll deductions includes all of the following EXCEPT:
When a company redeems bonds before maturity, a loss on bond redemption occurs if:
What is the formula for the current ratio?
What does the times interest earned ratio measure?
For a bond issued at 102, the carrying value of the bond will be equal to the face value:
The journal entry to record the employer's payroll tax expense includes a credit to all of the following EXCEPT:
If a bond is issued at 98, the amount of interest expense the issuing company reports in a period will:
The market interest rate for a bond is:
If a company has working capital of $2,500,000 and a current ratio of 1.31:1, what are its current liabilities?
The interest on a $100,000, 12 percent, 4-month note payable is recorded on December 31 with a debit to:
The primary difference between the straight-line and effective-interest methods of amortization is that the effective-interest method:
What does a company record when it remits sales taxes to the taxing agency?
Current maturities of long-term debt should be classified on the balance sheet as:
In the context of bond financing, the term 'stated rate' is synonymous with:
A $1,000 bond with a quoted price of 97 would have a selling price of:
Using the data for Candlestick Inc.'s bond issued at a premium ($102,000 issue price, 10 percent contractual rate, 5-year term), what is the total cost of borrowing using the straight-line method?
Amortization of a bond premium over the life of the bond will:
If a company has a debt to assets ratio of 80 percent, it means that:
Which of the following describes the relationship between the components of an installment payment on a mortgage note over time?
A company with total assets of $34,700, net income of $14,000, interest expense of $900, and income tax expense of $2,800 has a times interest earned ratio of:
Using the straight-line method, the entry to amortize a bond discount includes a:
What is the key difference in the calculation of interest expense between the straight-line and effective-interest methods of amortization?
A bond with a face value of $500,000 is issued at 97. The journal entry to record the issuance would include:
Gross earnings for a pay period are $60,000. FICA taxes are $4,590, federal income tax withheld is $6,500, and state income tax withheld is $2,000. What is the amount of Salaries and Wages Payable?
If a company uses the effective-interest method for a bond issued at a premium, the amount of premium amortization for a given period is calculated by:
When a company redeems a bond at maturity, the entry to record the redemption includes a debit to:
Working capital is calculated as:
Which of these bond types has specific assets of the issuer pledged as collateral?