Question

Company Baldwin invested $50,460,000 in plant and equipment last year. The plant investment was funded with bonds at a face value of $33,582,566 at 13.7% interest, and equity of $16,877,434. Depreciation is 15 years straight line. For this transaction alone which of the following statements are true?
a. Depreciation increased by $3,364,000.
b. Since the new plant was funded with debt and equity, on the Balance sheet Retained Earnings decreased by $16,741,282, the difference between the investment $50,460,000 and the bond $33,718,718.
c. On the Balance sheet, Long Term Debt changed by $33,718,718.
d. Cash was pulled from retained earnings to cover the $16,741,282 difference between the plant purchase and bond issue.
e. Cash went down by $50,460,000 when the plant was purchased.
f. Buying the plant had no net effect on the Cash account, because the plant was paid for by the bond plus retained earnings.
g. Cash went up when the Bond was issued by $33,718,718.
h. On the Balance sheet, Plant & Equipment increased by $50,460,000.

Answer 1

Answer:

a. true

b. false

c. true

d. false

e. true

f. false

g. true

h. true

Explanation:

a. we solve for depreciation

$50,460,000/15

= $3364000

this is true

b. retained earnings have no roles to play in this option. false

c. The long term debt has been sen to chaange by

50460000-16741282

= $33718718

true

d. This is false retained earnings have no role to play here.

e. This is true because this is the amount that was used to purchase the plant

f. false since retained earning has nothing to do here.

g. this is true also. the face value of the bond is $33,718,718.

h. this is true. since palnt and equipment is $5046000