Question

It is January 2nd and senior management of Digby meets to determine their investment plan for the year. They decide to fully fund a plant and equipment purchase by issuing $10,000,000 in bonds. Assume the bonds are issued at face value and leverage changes to 2.8. Which of the following statements are true? Select all that apply. Select: 3

Total Assets will rise to $208,318,039

Working capital will remain the same at $10,268,980 Digby’s long-term debt will rise by $9,000,000

The total investment for Digby will be $194,970,588

Total liabilities will be $130,571,288

Answer 1

Answer
Option C). Total Assets will rise to $208,318,039.
Option E). Digby’s long-term debt will rise by $90,000,000.
Explanation :- When the plant and equipment is purchased by issuing the bond then the following journal entry would be passed :-
General journal	Debit ($)	Credit ($)
Plant and Equipment (Asset) A/c Dr.	$     90,00,000
To Bonds payable (Long-term debt) A/c		$ 90,00,000
Accordingly, The long-term debt of Digby will rise by $90,00,000 & Total assets will rise to $ 208,318,039.