SAT Case 11-3-Power Point-2010

SAT Case 11-3-Power Point-2010 -...

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Ray Swetnam and Michelle Ragsdale
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Debt with the option to convert  GAAP treatment APB Opinion No. 14 Other theoretical treatments Previous GAAP Classified according to governing characteristics
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Shares of preferred stock that have features more  like debt than equity SFAS No. 150
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Compare the effects of the two financing  alternatives on Baker Company’s balance  sheet, income statement, and cash flows  under current GAAP.
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CONVERTIBLE BONDS Increase in LT Debt Increase LT Debt/Assets Ratio Increase Debt/Equity Ratio May cause debt covenant to be violated
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REDEEMABLE PREFERRED STOCK Increase in long-term debt at issuance will remain in LT  debt until the stock is redeemed Increase in debt-to-assets ratio Increase in debt-to-equity ratio May cause debt covenant to be violated
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CONVERTIBLE BONDS REDEEMABLE PREFERRED  STOCK Increase to interest  expense Accrued interest expense  for the redeemed premium
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SAT Case 11-3-Power Point-2010 -...

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