161. Refer to the above data. What will be the effect on Apex's debt ratio if Apex's owner invests an additional $2 million to finance its expansion?
A. The debt ratio will decrease from .1 (2/20) to .0909 (2/22) after the additional investment.
B. The debt ratio will decrease from 2/9 before to 2/11 after the additional investment.
C. The debt ratio will increase from 20 before to 22 after the additional investment.
D. Additional investment by owner will have no effect on the debt ratio.
162. Refer to the above data. Assume Apex borrows $2 million to finance its expansion. Apex's debt ratio immediately after the borrowing will be:
A. .10.
B. .20.
C. .33 (rounded).
D. .18.
$4/$22 = .18
163. Refer to the above data. What is the maximum amount Apex can borrow and not exceed a debt ratio of .3?
A. $4,000,000.
B. $5,500,000.
C. $5,000,000.
D. Some other amount.
$7.5/$25.5 = 2.94
164. On February 28, 2009, $5,000,000 of 6%, 10-year bonds payable, dated December 31, 2008, are issued. Interest on the bonds is payable semiannually each June 30 and December 31. If the total amount received (including accrued interest) by the issuing corporation is $5,060,000, which of the following is correct?
A. The bonds were issued at a premium.
B. The amount of cash paid to bondholders on the next interest date, June 30, 2009, is $300,000.
C. The amount of cash paid to bondholders on the next interest date, June 30, 2009, is $50,000.
D. The bonds were issued at a discount.
$5,060,000 - ($5,000,000 ? 6% ? 2/12) = $10,000 premium
Webster Company issues $1,000,000 face value, 6%, 5-year bonds payable on December 31, 2009. Interest is paid semiannually each June 30 and December 31. The bonds sell at a price of 97; Webster uses the straight-line method of amortizing bond discount or premium.
165. Refer to the information above. The entry made by Webster Company to record issuance of the bonds payable at December 31, 2009, includes:
A. A debit to Cash of $1,000,000.
B. A debit to Discount on Bonds Payable of $30,000.
C. A credit to Bonds Payable of $970,000.
D. A credit to Bond Interest Payable of $30,000.
$1,000,000 - ($1,000,000 ? .97) = $30,000
166. Refer to the information above. Webster 's entry at June 30, 2010, to record the first semiannual payment of interest and amortization of discount on the bonds includes a:
A. Debit to Bond Interest Expense of $30,000.
B. Credit to Cash of $33,000.
C. Debit to Discount on Bonds Payable of $3,000.
D. Debit to Bond Interest Expense of $33,000.
$1,000,000 ? 3% + $30,000/10 = $33,000
167. Refer to the information above. The amount of bond interest expense recognized by Webster Company in 2009 with respect to these bonds is:
A. $60,000.
B. $63,000.
C. $120,000.
D. $66,000.
$1,000,000 ? .06 + 2($30,000/10) = $66,000
168. Refer to the information above. The carrying value of this liability in Webster Company's December 31, 2010, balance sheet is:
A. $1,000,000.
B. $970,000.
C. $976,000.
D. Some other amount.
$970,000 + $6,000 = $976,000