The following worksheet with information extracted from a financial statement of XYZ Company: 2020 Assets Liabiitfies Equity Reported ($) 400 000 200 000 200 000 You believe the firm has omitted a provision pertaining to a lawsuit. You assess this provision is valued at $50 000 and that it will be paid in the next seven months. Using the worksheet approach and assuming a corporate tax rate of 30 per cent, what would be the adjusted debt to assets ratio? Explain the impact/implications of change in the debt to asset ratio on borrowing capacity of the company.

The following worksheet with information extracted from a financial statement of XYZ Company: 2020 Assets Liabiitfies Equity Reported ($) 400 000 200 000 200 000 You believe the firm has omitted a provision pertaining to a lawsuit. You assess this provision is valued at $50 000 and that it will be paid in the next seven months. Using the worksheet approach and assuming a corporate tax rate of 30 per cent, what would be the adjusted debt to assets ratio? Explain the impact/implications of change in the debt to asset ratio on borrowing capacity of the company.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Consider the following worksheet with information extracted from a financial statement:2020 Assets Liabilities EquityReported (P) 500 000 100 000 400 000You believe the firm has omitted a provision pertaining to a lawsuit. You assess this provision is valued at P50 000 and that it will be paid in the next six months. Using the worksheet approach and assuming a corporate tax rate of 30 percent, what would be the change to the total value of the liability account?
Consider the following worksheet with information extracted from a financial statement:2020 Assets Liabilities EquityReported (P) 400 000 100 000 300 000You identify that a firm has incorrectly recognized revenue on P50 000 worth of goods in the form of receivables. You decide to reverse this sale and the associated inventory which has a value of P40 000. Using the worksheet approach and assuming a corporate tax rate of 30 percent, what would be the adjusted debt to assets ratio?
Prepare the income statement for 2020 TPR had one major creditor at the beginning of 2020. One of the major banks loaned TPR $500,000 for ongoing operating costs. The outstanding portion of the loan was $400,000 at the beginning of the vear. The bank requires TPR to maintain a current ratio of 1.8:1 or the loan may become immediately repayable. It also requires TPR to have a debt to total asset ratio of no greater than 55%. Information required for adjusting journal entries: 1. There is no interest accrual required for the mortgage loan on the building because payment was made on December 31. The loan for the balloon machine carries an interest rate of 5% and has been outstanding for 15 days. 2. Depreciation of $800 on the cash register machines and $15,000 on the other equipment has not yet been recorded. 3. A dividend of $2,000 was declared but has not been recorded. It will be paid in March 2021. 4. The monthly electricity bill of $2,000 was received in early January 2021. This…
Tamarisk Company in its first year of operations provides the following information related to one of its available-for-sale debt securities at December 31, 2020. Amoortization cost $52,100 Fair Value 44,200 Expected credit losses 12,850 What is the amount of the credit loss that Tamarisk should report on this available-for-sale security at December 31, 2020? Prepare the journal entry to record the credit loss, if any (and any other adjustment needed), at December 31, 2020. Assume that the fair value of the available-for-sale security is $57,200 at December 31, 2020, instead of $44,200. What is the amount of the credit loss that Tamarisk should report at December 31, 2020? Assume the same information as for part (c). Prepare the journal entry to record the credit loss, if necessary (and any other adjustment needed), at December 31, 2020.
On April 1, 2021, the Electronic Superstore borrows $21 million of which $7 million is due in 2022. Show how the company would report the $21 million debt on its December 31, 2021 balance sheet. (Enter your answers in dollars not in millions. For example, $7,000,000 rather than $7 million.) Electronic Superstore Partial Balance sheet December 31st 2021 Current liabilities: Long-term liabilities: Total liabilities
Marigold Company in its first year of operations provides the following information related to one of its available-for-sale debt securities at December 31, 2020. Amortized cost $51,100 Fair value 42,200 Expected credit losses 12,600 A. What is the amount of credit loss that marigold should report on this available-for-sale security at december 31, 2020? Amount of the credit loss $ 8,900 B. Prepare the journal entry to record the credit loss, if any ( and other adjustments needed), at December 31, 2020? date account titles and explanations debit credit 12/31/20 8,900 8,900 Please note that the answer is NOT Debit Loss on available for sale debt securities and Credit avilable for sale debt securities. These are the account titles I can choose from... Accumulated Other…
At January 1, 2024, Clayton Hoists Incorporated owed Third BancCorp $31 million, under a 10% note due December 31, 2025. Interest was paid last on December 31, 2022. Clayton was experiencing severe financial difficulties and asked Third BancCorp to modify the terms of the debt agreement. After negotiation Third BancCorp agreed to do the following: Note: Use appropriate factor(s) from the tables provided. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) ● Forgive the interest accrued for the year just ended. • Reduce the remaining two years' interest payments to $1 million each. ● Reduce the principal amount to $30 million. Required: 1-3. Prepare the journal entries by Third BancCorp necessitated by the restructuring of the debt at January 1, 2024, December 31, 2024 and December 31, 2025. Note: Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers…
At January 1, 2024, Clayton Hoists Incorporated owed Third BancCorp $20 million, under a 10% note due December 31, 2025. Interest was paid last on December 31, 2022. Clayton was experiencing severe financial difficulties and asked Third BancCorp to modify the terms of the debt agreement. After negotiation Third BancCorp agreed to do the following: Note: Use appropriate factor(s) from the tables provided. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) • Forgive the interest accrued for the year just ended. • Reduce the remaining two years' interest payments to $1 million each. • Reduce the principal amount to $19 million. Required: 1-3. Prepare the journal entries by Third BancCorp necessitated by the restructuring of the debt at January 1, 2024, December 31, 2024 and December 31, 2025. Note: Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers…
Taken from the records of Care Company as of December 31, 2021 are the following information:  Long-term debt of P10,000,000 dated January 1, 2014 due December 31, 2022. Albano expects to refinance this liability on a long-term basis on January 2022. The financing agreement was consummated on February 2, 2022. Note payable due on January 1, 2024 amounting to P6,000,000. The note is payable on demand. Bank loan of P14,000,000 due December 31, 2026 wherein a breach of loan covenant was committed by Albano during 2021. The bank agreed on December 31, 2021 to provide Sayonara a grace period to rectify the breach ending December 31, 2022. Serial bonds dated January 8, 2021 totalling P10,000,000 payable in 10 annual instalments. 5. How much would be included in the current liabilities section of Care’s year-end financial statement?
Morley Company in its first year of operations provides the following information related to one of its available-for-sale debt securities at December 31, 2020. Amortized cost $50,000 Fair value 40,000 Expected credit loss 12,000 a. What is the amount of the credit loss that Morley should report on this available-for-sale security at December 31, 2020? b. Prepare the journal entry to record the credit loss, if any (and any other adjustment needed), at December 31, 2020. c. Assume that the fair value of the available-for-sale security is $53,000 at December 31, 2020, instead of $40,000. What is the amount of the credit loss that Morley should report at December 31, 2020? d. Assume the same information as for part (c). Prepare the journal entry to record the credit loss, if necessary (and any other adjustment needed), at December 31, 2020.
Your client, PPC Ltd., prepared the following schedule for long-term debt for the audit of financial statements for the year ended December 31, 2020: Description National Bank- Long term loans Mortgage payable Bonds payable TOTAL Interest Due date rate 7.5 % 2025 7.75% 2027 6% 2026 Beginning Additions Payments Ending balance balance 1/1/2020 31/12/2020 900,000 1,000,000 2,000,000 3,100,000 6,000,000 100,000 100,000 1,500,000 500,000 200,000 2,900,000 700,000 5,400,000 Requirements: a) What types of evidence would you use to support above figures? (16marks) b) What procedures would you perform related to the ending balances in the accounts? (4marks)
Carla Company in its first year of operations provides the following information related to one of its available-for-sale debt securities at December 31, 2020. Amortized cost $50,300 Fair value 40,600 Expected credit losses 12,200 (a) What is the amount of the credit loss that Carla should report on this available-for-sale security at December 31, 2020? Amount of the credit loss $