Exam 6: Financing Activities

Santa Corporation NOTE: These multiple choice questions require present value information. Santa Corporation manufactures Christmas decorations and supplies throughout the world. The company owns property, plant, and equipment and also enters into operating leases for certain facilities. Assume that Santa's incremental borrowing rate is 8%. The company's tax rate is 40%. Listed below is selected financial data for Santa and a portion of the company's operating lease footnote. Property, Plant, \& Equipment (net) \8 82,468 \7 17,453 \6 58,214 Total Assets 1,756,854 \ 1,405,484 1,254,896 Common Shareholders'Equity 867,992 652,626 587,951 Sales \ 2,922,915 \ 2,415,632 Cost of GoodsSold 2,016,811 1,642,630 Depreciation Expense 78,584 67,542 Interest Expense 106,663 90,343 Net Income 248,448 217,407 Sant Corp. Operating Lease Disclosure (amounts in thousands) Operating Lease Commitments at the end of 2012 Year Reported Lease Commitments 2013 \ 148,239 2014 \ 252,800 2015 \ 278,327 2016 \ 279,210 2017 \ 285,452 Beyond 2017 \ 2,471,600 - Using the information provided by Santa Corporation calculate the present value of the operating leases.

Porter Corporation NOTE: The following multiple choice questions require present value information. On January 1, 2012, Porter Corporation signed a five-year noncancelable lease for certain machinery. The terms of the lease called for: 1) Price to make amual payments of \ 60,000 at the end of each year (starting on Dec. 31,2012 ) for five years. Porter must return the equipment to the lessor end of this period. 2) The machinery has an estimated useful life of 6 years and no expected salvage value. 3) Porter usesthe straight-line method of depreciation for all of its fixed assets. 4) Porter's incremental borrowing rate is 8\% . 5) The fair value of the asset at Januaty 1,2012 is \ 275,000 . - At January 1, 2012, Porter should record an asset and liability with respect to the equipment lease equal to

The _________________________ is the date a firm gives a stock option to employees.

Following is the shareholders' equity section of Morgan Supplies on a day its common stock is trading at $77 per share. Common stock ( \ 2 par value, 30,000 sharesissued and outstanding) \ 60,000 Additional paichin capital on common stock 1,200,000 Retained earrings 3,000,000 Required: a. Use the financial statement template below to show the financial statement effects of the following dividend events. (Assume that the events are independent.) (1) Cash dividend declaration and payment of $1 per share (2) Property dividend declaration and payment of shares representing a short-term investment in Screen Products, Ltd., with a fair value of $15,000 (3) 10 percent stock dividend (4) 100 percent stock dividend (5) 3-for-1 stock split (6) 1-for-2 reverse stock split Journal entry (optional): b. Which events changed the book value of common equity? c. Under what conditions will these events lead to future increases and decreases in ROE?

All of the following are typically recognized as accounting liabilities except:

Which is the date when a firm gives a stock option to employees?

An agreement in which a purchaser agrees to pay specified amounts periodically to a seller for products or services is known as a ________________________________________.

Which kind of dividends have an interest-bearing promise to pay dividends?

The lessor in a capital lease recognizes both a(n) ____________________ and ____________________ equal to the present value of all future cash flows.

Porter Corporation NOTE: The following multiple choice questions require present value information. On January 1, 2012, Porter Corporation signed a five-year noncancelable lease for certain machinery. The terms of the lease called for: 1) Price to make amual payments of \ 60,000 at the end of each year (starting on Dec. 31,2012 ) for five years. Porter must return the equipment to the lessor end of this period. 2) The machinery has an estimated useful life of 6 years and no expected salvage value. 3) Porter usesthe straight-line method of depreciation for all of its fixed assets. 4) Porter's incremental borrowing rate is 8\% . 5) The fair value of the asset at Januaty 1,2012 is \ 275,000 . - What accounting method should Porter use to account for the equipment lease?

Which is the first date when employees can exercise their stock options?

A security that has both equity and debt characteristics is referred to as a ______________________________.

The acceptable method of accounting for stock options is the _________________________ method.

Graham Corporation accounts for its investment in the common stock of Luke Company under the equity method. Graham Corporation should ordinarily record a cash dividend received from Luke as

Why can exercising stock options can create cash flow problems for managers at the exercise date? What is an alternative to this problem?

The first date at which employees can exercise their stock options is termed the _________________________.

A ____________________ lease arrangement is one in which the lessee assumes the risks and enjoys the rewards of ownership.

Porter Corporation NOTE: The following multiple choice questions require present value information. On January 1, 2012, Porter Corporation signed a five-year noncancelable lease for certain machinery. The terms of the lease called for: 1) Price to make amual payments of \ 60,000 at the end of each year (starting on Dec. 31,2012 ) for five years. Porter must return the equipment to the lessor end of this period. 2) The machinery has an estimated useful life of 6 years and no expected salvage value. 3) Porter usesthe straight-line method of depreciation for all of its fixed assets. 4) Porter's incremental borrowing rate is 8\% . 5) The fair value of the asset at Januaty 1,2012 is \ 275,000 . - Under which of the following conditions does the equipment lease qualify for capital lease accounting?

In the chart below, assign the directional effect (I = increase, D = decrease, or NE = no effect) of each of the following four transactions on the components of the book value of common shareholders' equity. a. Recognition of compensation expense related to restricted stock. b. Granting of stock appreciation rights to be settled with cash. c. Recognition of compensation expense on stock appreciation rights. d. Reacquisition and retirement of common stock at an amount greater than original issue price. Item a. b. c. d Common Stock Additional Paid-In Capital Deferred Compensation Retained Earrings Treasury Stock at Cost Total Common Shareholders' Equity

Santa Corporation NOTE: These multiple choice questions require present value information. Santa Corporation manufactures Christmas decorations and supplies throughout the world. The company owns property, plant, and equipment and also enters into operating leases for certain facilities. Assume that Santa's incremental borrowing rate is 8%. The company's tax rate is 40%. Listed below is selected financial data for Santa and a portion of the company's operating lease footnote. Property, Plant, \& Equipment (net) \8 82,468 \7 17,453 \6 58,214 Total Assets 1,756,854 \ 1,405,484 1,254,896 Common Shareholders'Equity 867,992 652,626 587,951 Sales \ 2,922,915 \ 2,415,632 Cost of GoodsSold 2,016,811 1,642,630 Depreciation Expense 78,584 67,542 Interest Expense 106,663 90,343 Net Income 248,448 217,407 Sant Corp. Operating Lease Disclosure (amounts in thousands) Operating Lease Commitments at the end of 2012 Year Reported Lease Commitments 2013 \ 148,239 2014 \ 252,800 2015 \ 278,327 2016 \ 279,210 2017 \ 285,452 Beyond 2017 \ 2,471,600 - Assuming that Santa Corporation was required to capitalize its operating lease how would the company's fixed asset ratio change under this assumption.