Homework__3___4 - Part 1: True or False. Provide...

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Part 1: True or False. Provide explanations 1. Debt financing means obtaining capital from investors. 2. Principal = rate x time x interest. 3. A bond is a written agreement that specifies a company’s responsibility to pay interest and to repay the principal to the bondholders at the end of the term of the bond. 4. Bondholders are considered owners of a company. 5. Zero coupon bonds do not provide bondholders with interest payments. Instead, the face value of the bond is paid to the owner at the maturity date of the bond. 6. If a company earns more with the money it borrows than it has to pay to borrow that money, it is called positive financial leverage. 7. The primary risk for a company associated with long-term debt is the risk of not being able to make the debt payments. 8. Retained earnings is the amount owners have invested in a corporation. 9. Paid-in capital is divided into capital stock and retained earnings. 10. Treasury stock is a company’s own stock that the company has purchased on the stock market. 11. Dividends are an operating expense of a corporation. 12. Preferred stock has preference over common stock when dividends are paid. True 13. Treasury stock is a contra-asset account. 14. The purchase of treasury stock reduces a company’s assets and stockholders’ equity. 15. Treasury stock is shown as an increase in shareholders’ equity on the balance sheet. 16. Outstanding stock has been issued and is either in the hands of shareholders or held by a corporation as treasury stock. 17. Stock splits occur when a corporation increases the number of shares and proportionately decrease the par value.
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18. The statement of cash flows shows all of the cash a company has received and all the cash a company has disbursed from operating, investing, and manufacturing during the accounting period. 19. A statement of cash flows is a detailed plan of a company’s estimated cash receipts and estimated cash disbursements. 20. A statement of cash flows based on the direct method is prepared by converting every number on the income statement to its cash amount. 21. Cash from investing includes all cash receipts and cash disbursements for routine sales and purchases made in the course of doing business. 22. The only difference between the direct and indirect method used for the preparation of the statement of cash flows applies only to cash from operations. 23. Cash from financing activities includes all cash receipts and all cash disbursements for long-term business assets and for investments. 24. Cash from financing activities includes all cash receipts and all cash disbursements for loan principal, as well as contributions from, and distributions to, owners. 25.
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This note was uploaded on 05/26/2008 for the course ACCTG 211 taught by Professor Johnston during the Summer '99 term at Pennsylvania State University, University Park.

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Homework__3___4 - Part 1: True or False. Provide...

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