**** ONLY NEED QUESTION 5 & 6 **** Information: Using the money from their recent bond...
**** ONLY NEED QUESTION 5 & 6 ****
Information:
Using the money from their recent bond issue, Terry’s management has decided to declare an additional $562,500 dividend. The date of declaration is December 30, Year 3. The date of record will be January 15, Year 4, and the date of payment will be January 30, Year 4.
As an additional signal to the market, Terry’s management repurchased 205,000 shares of Terry’s common stock on December 15, Year 3 for $8.00 a share.
Terry’s management would like to know the effect of the sale on the following ratios:
*Current Ratio
*ROA
Assignment:
1. Calculate each of the two (2) ratios before you make any adjustments.
2. Make the appropriate journal entries, if any, to account for Terry’s extra dividend and stock repurchase (including any necessary changes to income tax expense).
3. Make any necessary changes to the financial statements.
4. Calculate the two (2) ratios after you make any adjustments.
Critical Thinking:
5. What do you think investors’ reaction will be to management’s decision to issue a new bond? In other words, based on your changes to the financial statements and the change in the ratios, do you think investors will be happy with the decision to issue the new debt? Why or why not?
6. Terry’s CFO has been concerned about the issuance of this bond. The company really doesn’t need the additional cash at the moment, despite some vague plans to expand in the near future. The rest of the management team, on the other hand, felt that the additional cash would allow them to repurchase shares and pay a larger dividend for the period, both of which would help to calm investors’ fears after all of the changes that needed to be made to the financial statements this period. Provide two (2) arguments that the CFO could have used to try to talk his colleagues out of issuing the bond.
Homework Answers
5- Issuing of bonds leads to entering into contract to pay a fixed amount of interest. Hence if more of the debts are taken than there is a chance that the earning will be reduced as there will now be higher amounts on account of interest.
If the earning reduces than the company will be able to pay less amount in dividend and earning per share will reduce.
6- Terry should have spoken to his colleagues as issuing of debts will make company liable to pay the contracted amount even if there are losses. If in case the fortune of company changes and there are not that much profit than they might end up in taking more loan to pay the old debts or may have to go bankrupt.
Add Answer to:
**** ONLY NEED QUESTION 5 & 6 ****
Information:
Using the money from their recent bond...
Only need questions 5 & 6 answered. Information: • On August 1, Terry issued a $1,600,000,...
Only need questions 5 & 6 answered. Information: • On August 1, Terry issued a $1,600,000, semi-annual, 6 year, 4.5% bond. The market rate for similar bonds on that day was 5.0%. Terry uses the effective interest method to record the amortization or premiums and discounts. Terry’s management has decided to report net bonds on the balance sheet, instead of reporting the bond and its premium or discount separately. No entries have yet been made for the bond. Terry’s management...
Information: • On August 1, Terry issued a $1,600,000, semi-annual, 6 year, 4.5% bond. The market...
Information: • On August 1, Terry issued a $1,600,000, semi-annual, 6 year, 4.5% bond. The market rate for similar bonds on that day was 5.0%. Terry uses the effective interest method to record the amortization or premiums and discounts. Terry’s management has decided to report net bonds on the balance sheet, instead of reporting the bond and its premium or discount separately. No entries have yet been made for the bond. Terry’s management would like to know the effect of...
Using the money from their recent bond issue, Terry’s management has decided to declare an additional...
Using the money from their recent bond issue, Terry’s management has decided to declare an additional $562,500 dividend. The date of declaration is December 30, Year 3. The date of record will be January 15, Year 4, and the date of payment will be January 30, Year 4. As an additional signal to the market, Terry’s management repurchased 205,000 shares of Terry’s common stock on December 15, Year 3 for $8.00 a share. At the beginning of Year 2, Terry’s...
Information: Using the money from their recent bond issue, Terry’s management has decided to declare an...
Information: Using the money from their recent bond issue, Terry’s management has decided to declare an additional $562,500 dividend. The date of declaration is December 30, Year 3. The date of record will be January 15, Year 4, and the date of payment will be January 30, Year 4. As an additional signal to the market, Terry’s management repurchased 205,000 shares of Terry’s common stock on December 15, Year 3 for $8.00 a share. Terry’s management would like to know...
Information: Using the money from their recent bond issue, Terry’s management has decided to declare an...
Information:
Using the money from their recent bond issue, Terry’s management
has decided to declare an additional $562,500 dividend. The date of
declaration is December 30, Year 3. The date of record will be
January 15, Year 4, and the date of payment will be January 30,
Year 4.
As an additional signal to the market, Terry’s management
repurchased 205,000 shares of Terry’s common stock on December 15,
Year 3 for $8.00 a share. Tax rate is 25%...
Using the money from their recent bond issue, Terry’s management has decided to declare an additional...
Using the money from their recent bond issue, Terry’s management
has decided to declare an additional $562,500 dividend. The date of
declaration is December 30, Year 3. The date of record will be
January 15, Year 4, and the date of payment will be January 30,
Year 4.
As an additional signal to the market, Terry’s management
repurchased 205,000 shares of Terry’s common stock on December 15,
Year 3 for $8.00 a share.
Terry’s management would like to know the...
Using the money from their recent bond issue, Terry’s management has decided to declare an additional...
Using the money from their recent bond issue, Terry’s management
has decided to declare an additional $562,500 dividend. The date of
declaration is December 30, Year 3. The date of record will be
January 15, Year 4, and the date of payment will be January 30,
Year 4.
As an additional signal to the market, Terry’s management
repurchased 205,000 shares of Terry’s common stock on December 15,
Year 3 for $8.00 a share.
Terry’s management would like to know the...
On August 1, Terry issued a $1,600,000, semi-annual, 6 year, 4.5% bond. The market rate for...
On August 1, Terry issued a $1,600,000, semi-annual, 6 year,
4.5% bond. The market rate for similar bonds on that day was 5.0%.
Terry uses the effective interest method to record the amortization
or premiums and discounts. Terry’s management has decided to report
net bonds on the balance sheet, instead of reporting the bond and
its premium or discount separately. No entries have yet been made
for the bond. Terry’s management would like to know the effect of
the sale...
****Only Need 6 & 7 answered **** Terry has three main classifications of employees: management, designers,...
****Only Need 6 & 7 answered ****
Terry has three main classifications of employees: management,
designers, and production workers. In order to retain their
qualified design (or research) staff, Terry has offered them a
small defined benefit pension if they remain with the company until
their retirement. Terry’s management team has been provided with a
401(k) (despite numerous complaints from the management team that
they also deserve a pension). Since the production team
traditionally turns over very quickly with little...
Information: Terry has three main classifications of employees: management, designers, and production workers. In order to...
Information:
Terry has three main classifications of employees: management,
designers, and production workers. In
order to retain their qualified design (or research) staff,
Terry has offered them a small defined benefit
pension if they remain with the company until their retirement.
Terry’s management team has been
provided with a 401(k) (despite numerous complaints from the
management team that they also
deserve a pension). Since the production team traditionally
turns over very quickly with little adverse
effect on the company, Terry...
Information:
Using the money from their recent bond issue, Terry’s management
has decided to declare an additional $562,500 dividend. The date of
declaration is December 30, Year 3. The date of record will be
January 15, Year 4, and the date of payment will be January 30,
Year 4.
As an additional signal to the market, Terry’s management
repurchased 205,000 shares of Terry’s common stock on December 15,
Year 3 for $8.00 a share. Tax rate is 25%...
Using the money from their recent bond issue, Terry’s management
has decided to declare an additional $562,500 dividend. The date of
declaration is December 30, Year 3. The date of record will be
January 15, Year 4, and the date of payment will be January 30,
Year 4.
As an additional signal to the market, Terry’s management
repurchased 205,000 shares of Terry’s common stock on December 15,
Year 3 for $8.00 a share.
Terry’s management would like to know the...
Using the money from their recent bond issue, Terry’s management
has decided to declare an additional $562,500 dividend. The date of
declaration is December 30, Year 3. The date of record will be
January 15, Year 4, and the date of payment will be January 30,
Year 4.
As an additional signal to the market, Terry’s management
repurchased 205,000 shares of Terry’s common stock on December 15,
Year 3 for $8.00 a share.
Terry’s management would like to know the...
On August 1, Terry issued a $1,600,000, semi-annual, 6 year,
4.5% bond. The market rate for similar bonds on that day was 5.0%.
Terry uses the effective interest method to record the amortization
or premiums and discounts. Terry’s management has decided to report
net bonds on the balance sheet, instead of reporting the bond and
its premium or discount separately. No entries have yet been made
for the bond. Terry’s management would like to know the effect of
the sale...
****Only Need 6 & 7 answered ****
Terry has three main classifications of employees: management,
designers, and production workers. In order to retain their
qualified design (or research) staff, Terry has offered them a
small defined benefit pension if they remain with the company until
their retirement. Terry’s management team has been provided with a
401(k) (despite numerous complaints from the management team that
they also deserve a pension). Since the production team
traditionally turns over very quickly with little...
Information:
Terry has three main classifications of employees: management,
designers, and production workers. In
order to retain their qualified design (or research) staff,
Terry has offered them a small defined benefit
pension if they remain with the company until their retirement.
Terry’s management team has been
provided with a 401(k) (despite numerous complaints from the
management team that they also
deserve a pension). Since the production team traditionally
turns over very quickly with little adverse
effect on the company, Terry...
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