Ch.9 Accounting Smart Book

_________financing refers to obtaining investment from stockholders. (Enter only one word.)

equity

The two types of financing are

equity financing debt financing

A company's capital structure refers to

the mixture of debt and equity used to finance the company.

The journal entry to recognize the signing of an installment notes payable includes:

Debit Cash Credit Notes Payable

An advantage to financing with debt is that

interest is tax deductible

Loans requiring periodic payments of interest and principle are referred to as _________notes.

installment

In order to expand its business, Mueller Inc. is selling $10 million in common stock. Mueller is utilizing this type of financing:

equity

True or false: The full balance of a 10 year installment note payable that requires annual payments is reported as long-term debt.

false

Financing with_______ requires borrowing, whereas financing with ______ requires issuing shares of stock. (Enter one word per blank.)

debt equity

Bonds and leases are normally classified as ______ liabilities.

long-term

Which of the following are methods of long-term financing with debt?

Notes payable Bonds Leases

Which of the following are typically shown in an amortization schedule related to an installment notes payable requiring period payment of interest and principal? (Select all that apply.)

The carrying value of the note at the end of the period The cash paid each payment period The decrease in the carrying value of the note Interest expense based on the beginning period carrying value and the effective rate of the loan

At the beginning of the year, Petra owes $10,000 on an installment notes payable, which has an interest rate of 6%. At the end of the year, Petra makes a payment of $2,000. After the payment, the carrying value of the installment notes payable will be:

$8,600 Reason: $10,000 - $(2,000 - (10,000 x .06) = $8,600

During the current year, Katie Corp. pays $5,120 on an installment note. The outstanding loan balance at the beginning of the year was $50,000; the effective interest rate is 8%. Which of the statements regarding the installment note balance at the end of the current year is correct?

The balance is $48,880. Reason: $50,000 - (5,120 - 4,000 interest)

Debt is considered a lower cost method of financing than equity because

interest on debt is tax deductible.

In order to expand its business, Mueller Inc. is borrowing $1 million from its bank. Mueller is utilizing this type of financing:

Debt

Periodic payments on installment notes typically include (Select all that apply.)

a portion that reduces the outstanding loan balance. a portion that reflects interest.

The mixture of debt financing and equity financing a company uses is referred to as the company's _________structure.

capital

_________financing refers to borrowing money from creditors.

debt

Walker Inc. signs a $24,000 installment note, which requires equal monthly payments of $1,100 over the next two years. The journal entry to recognize the note includes a:

credit to Notes Payable for $24,000