S1] When the entity issues a long-term debt instrument, it exposes itself to solvency risk. [S2] When the board of directors agreed to regularly issue stock dividends, it faces liquidity risk. * a. Both are true. b. Both are false. c. Only S2 is true. d. Only S1 is true.
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[S1] When the entity issues a long-term debt instrument, it exposes itself to solvency risk. [S2] When the board of directors agreed to regularly issue stock dividends, it faces liquidity risk. *
a. Both are true.
b. Both are false.
c. Only S2 is true.
d. Only S1 is true.
Step by step
Solved in 2 steps
- [S1] Share warrants are often attached to debt instruments to entice creditors to also become ordinary shareholders especially when the entity would be unable to pay interests. [S2] An entity needing a large sum of financing would prefer issuing bonds with share warrants over bonds with conversion rights. * a. Only S1 is true.b. Only S2 is true.c. Both are true.d. Both are false.1. When the effective cost of debt is greater its the nominal cost,a. the initial net measurement of the bond is more than the face value.b. The net proceeds is more than the face value.c. The entity records a discount on the bond payable.d. The interest expense is less than the interest payments.2. Which of these statement are true? [S1] The dividend decision generally involves the same factors as the earnings retention decision. [S2] Under the Dividend Relevance Theory, dividends are valued more than capital gains.3. The cost of retained earnings is less than the cost of ordinary shares because ofa. the issuance cost.b. the trust fund doctrine.c. agency costs of free cash flow.d. the taxation on earnings.4. GHI Corp., a new and relatively unknown entity, has issued 5-year bonds with an interest rate of 30%. These may also be traded in by the holder for 5 ordinary shares for every P1,000 face value of the bond. GHI added this feature so that once it has better profits, it can entice…Which of the following statements is false? A. Mutual funds are pool investor funds to purchase financial instruments and thus reduce risks through diversification. B. Initial public offering (IPO) occurs when firm issues stock in the public market for the first time. C. The difference between current assets and non-current assets equals to working capital. D. Owner’s equity is the residual interest in assets that remains after subtracting an entity’s liabilities.
- For a company holding significant net financial assets (NFO), after issuing some new debt, its risk in operation should be_____ as before issuing the debt; and its required rate of return of equity should be ______ as before. A. the same as .... the same as B. lower than ... lower than C. higher than ... higher than D. the same as ... higher than Please donot provide solution in image format and provide solution in step by step format and asap1. Which of the following would never affect retained earnings? a. Correction of a prior period errorsb. Payment of long-term indebtednessc. Stock dividendd. Reissue of treasury shares 2. Appropriation for accumulated profits, if reflected in separate account, shall be shown as a. Component of equity as part of share premiumb. Component of total liabilities as current liabilityc. Component of total assets as noncurrent assetsd. Component of equity as part of reserves 3. An appropriation of accumulated profits for possible contingencies should be a. Charged with all losses related to that contingencyb. Transferred to income as losses are realizedc. Shown within shareholders’ equity in the statement of financial positiond. Classified in the liability section of the statement of financial position4. When preference share is cumulative, preferred dividends not declared in a period are a. called dividends in arrearsb. Distribution of earningsc. never paidd. considered a liability 5.…1. Treasury stock is presented on the balance sheet as an asset. a liability. a reduction to equity. a memorandum in the notes. 2. Under the cost method, when the corporation reacquires its capital stock, it assumes it will reissue rather than retire the stock. debits Treasury Stock for the price paid. credits Cash for the price paid. does all of these choices
- 8. For a company holding significant net financial assets (NFO), after issuing some new debt, its risk in operation should be_____ as before issuing the debt; and its required rate of return of equity should be ______ as before. A. the same as .... the same asB. lower than ... lower thanC. higher than ... higher thanD. the same as ... higher thanA. Provide brief explanations/definitions for each of the following:Tracking error, Asset Swaps, Liquidity Theory of the Term Structure, Contraction Risk. B. Why would a corporation elect to raise funds via a securitization rather than a corporate bond?True or False Please answer both. 1. Holders of equity have claims on both income and assets that are secondary to the claims of creditors 2. Preferred stock is a special stock having a fixed periodic dividend that must be paid prior to payment of interest to outstanding bonds
- Which one of the following statements about ordinary equity is correct? a. Shareholders have a residual claim to the firm's assets. b. Shareholders are repaid an ordinary share's value on the share's maturity date. c. Shareholders' return is always positive. d. Equity that is listed on the ASX must pay a dividend.3. Which statement is correct?I. Options and warrants are dilutive if the exercise price or option price is lower than the average market price of the ordinary share.II. Earnings per share shall be computed on the basis of average ordinary shares outstanding during the year. 4. Which statement is correct?I. EPS disclosure are required for all public and nonpublic entities.II. PAS 33, requires disclosures on the face of income statement of both basic and diluted earnings per shareChoose the incorrect statement below: A. Retained earnings are the funds contributed by shareholders in excess of par or stated value.B. Equity is defined as the residual interest in the assets of an entity after deducting all of the liabilities.C. Conversion of preference shares into ordinary shares directly affects retained earnings.D. The statement of changes in equity is a formal statement that shows the movements in the elements or components of the shareholders' equity.