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alekssr [168]
3 years ago
14

Meyer Inc's total invested capital is $610,000, and its total debt outstanding is $185,000. The new CFO wants to establish a tot

al debt to total capital ratio of 55%. The size of the firm will not change. How much debt must the company add or subtract to achieve the target debt to capital ratio?
a. $164,045
b. $150,500
c. $115,885
d. $165,550
e. $185,115
Business
1 answer:
valentinak56 [21]3 years ago
5 0

Answer:

b. $150,500  

Explanation:

debit/capital = $185000/$610000

                     = 30%

target debt is 55%

debt/capital = 0.55

let the new debt be Y

Y/$610,000 = 0.55

Y = $335,500

excess debt need by company = $335500 - $185000

                                                    = $150500

Therefore, The debt that the company must add to achieve the target debt to capital ratio is $150500.

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On the first day of its fiscal year, Chin Company issued $10,000,000 of five-year, 7% bonds to finance its operations of produci
Orlov [11]

Answer:

Chin Company

Journal Entries

1. Issuance of the bonds:

Debit Cash $9,594,415

Debit Bond Discounts $405,585

Credit Bonds Liability $10,000,000

To record the issuance of the bonds at a discount.

2. June 30:

Debit Bond Interest Expense $383,777

Credit Cash $350,000

Credit Amortization of Bond Discount $33,777

To record the first interest payment and amortization of bond discount.

3. December 31:

Debit Bond Interest Expense $385,128

Credit Cash $350,000

Credit Amortization of Bond Discount $35,128

To record the second interest payment and amortization of bond discount.

b. The amount of the bond interest expense for the first year:

June 30: Bonds' Interest expense = $383,777

Dec. 31: Bonds' Interest expense = $385,128

Total bond interest expense for the first year = $768,905

c. Chin Company was able to issue the bonds for only $9,594,415 rather than for the face amount of $10,000,000 because the bonds were issued at a discount and not face value.  Bonds can be issued at face value, discount, or premium, depending on the prevailing investor's sentiments and the attractiveness of the bonds to investors.

Explanation:

a) Data and Calculations

Face value of bonds = $10 million

Discounted value (Cash receipt) = $9,594,415

Total amount of discount = $405,585

Bond's interest rate = 7%

Market yield = 8%

Bond maturity period = 5 years

Payment period = semiannually

Issuance of the bonds:

Cash $9,594,415 Bond Discounts $405,585 Bonds Liability $10,000,000

June 30:

Cash payment for interest = $350,000 ($10,000,000 * 3.5%)

Bonds' Interest expense = $383,777 ($9,594,415 * 4%)

Amortization of bond discount = $33,777 ($383,777 - $350,000)

Bond book value = $9,628,192 ($9,594,415 + $33,777)

December 31:

Cash payment for interest = $350,000 ($10,000,000 * 3.5%)

Bonds' Interest expense = $385,128 ($9,628,192 * 4%)

Amortization of bond discount = $35,128 ( $385,128 - $350,000)

Bond book value = $9,663,410 ($9,628,192 + $35,218)

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Answer: See explanation

Explanation:

The journal entry to record the transaction for Sherman systems will be:

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Credit Treasury stock (1,225 × $34) = $41,650

Credit Paid in capital-Treasury Stock = $7,350

(To record sale 1225 shares from treasury stock)

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Debit Paid in capital-Treasury Stock = $7,350

Debit Retained earnings = $16,025

Credit Treasury stock (5,900-1,225) × $34) = $158,950

(To record sale balance from treasury stock)

7 0
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The Dawson Company manufactures small lamps and desk lamps. The following shows the activities per product and the total overhea
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Answer:

The total factory overhead to be charged to the desk lamps is $235,000

Explanation:

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