ADMS 3595 Chapter Notes - Chapter 14: Effective Interest Rate, Unsecured Debt, Amortization Schedule

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browncamel559

19 Sep 2013

School

York University

Department

Administrative Studies

Course

ADMS 3595

Professor

Shaweta Roopra

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Document Summary

Long term debt consists of obligations that are not payable within a year or the operating cycle, and will require sacrifices of economic benefits in the future. Include bonds payable, long term notes payable, mortgages payable, pension liabilities, and lease liabilities. Liability contracts may include restrictive covenants that are meant to limit activities and protect both lenders and borrowers. The main purpose of a bond is to borrow for the long term when the amount of capital that is needed is too large for one lender to supply. Registered bonds are issued in the owner"s name, and in order to sell a registered bond, the current certificate is surrendered and a new one issued. The bearer bond is not recorded in the owner"s name and may be transferred from one owner to the other. Secured is backed by a pledge of collateral. Unsecured debt are not backed by collateral.

Related Questions

Perform trend analysis on the MHS statement of revenue and expenses.

APPENDIX 28-A Metropolis Health Systemâs Financial Statements and Excerpts from Notes

Metropolis Health System Balance Sheet March 31, 20X3 and 20X2
Assets
Current Assets
Cash and cash equivalents	$1,150,000	$400,000
Assets whose use is limited	825,000	825,000
Patient accounts receivable	8,700,000	8,950,000
Less allowance for bad debts	(1,300,000)	(1,300,000)
Other receivables	150,000	100,000
Inventories of supplies	900,000	850,000
Prepaid expenses	200,000	150,000
Total Current Assets	10,625,000	9,975,000
Assets Whose Use Is Limited
Corporate funded depreciation	1,950,000	1,800,000
Under bond indenture agreementsâheld by trustee	1,425,000	1,475,000
Total Assets Whose Use Is Limited	3,375,000	3,275,000
Less Current Portion	(825,000)	(825,000)
Net Assets Whose Use Is Limited	2,550,000	2,450,000
Property, Plant, and Equipment, Net	19,300,000	19,200,000
Other Assets	325,000	375,000
Total Assets	$32,800,000	$32,000,000

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Metropolis Health System Balance Sheet March 31, 20X3 and 20X2
Liabilities and Fund Balance
Current Liabilities
Current maturities of long-term debt	$525,000	$500,000
Accounts payable and accrued expenses	4,900,000	5,300,000
Bond interest payable	300,000	325,000
Reimbursement settlement payable	100,000	175,000
Total Current Liabilities	5,825,000	6,300,000
Long-Term Debt	6,000,000	6,500,000
Less Current Portion of Long-Term Debt	(525,000)	(500,000)
Net Long-Term Debt	5,475,000	6,000,000
Total Liabilities	11,300,000	12,300,000
Fund Balances
General Fund	21,500,000	19,700,000
Total Fund Balances	21,500,000	19,700,000
Total Liabilities and Fund Balances	$32,800,000	$32,000,000

1. Your unitâs gross charges for the period to date amount to $200,000.

2. The uniform gross charge for each procedure in your unit is $100.

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3. The unit receives revenue from four major payers. The number of procedures performed for the period totals 2,000. Of that total, the number of procedures per payer (stated as a percentage) is as follows:Payer 1 = 30%Payer 2 = 40%Payer 3 = 20%Payer 4 = 10%

4. The following contractual payment arrangements are in effect for the current period. The percentage of the gross charge that is currently paid by each payer is as follows:Payer 1 = 80% [Medicare]Payer 2 = 70% [Commercial managed care plans]Payer 3 = 50% [Medicaid]Payer 4 = 90% [Self-pay]

Q: How many procedures are attributed to each payer?

Q: How much is the net revenue per procedure for each payer, and how much is the contractual allowance per procedure for each payer?

Q: How much is the total net revenue for each payer, and how much is the total contractual allowance for each payer?

amethystwasp107

Moral hazard is not eliminated in debt financing because

A) borrowers have an incentive to assume greater risk than is in the interest of the lender.

B) firms with a great deal of debt often go bankrupt.

C) principal-agent problems are greater with debt financing than with equity financing.

D) the use of restrictive covenants tends to increase moral hazard.

Why are corporations more likely to raise funds externally by debt instead of equity?

A) moral hazard is less of a problem with debt contracts

B) transactions costs tend to be higher in the stock market than bond market

C) to avoid paying dividends

D) interest rates tend to be lower than dividend rates

Which of the following is NOT a bank liability?

A) checkable deposits

B) CDs

C) mortgage loans

D) borrowings from the Federal Reserve

Banks use repurchase agreements to

A) ensure that payments on consumer loans are made on time.

B) borrow funds from business firms or other banks.

C) guard against price fluctuations on long-term bonds.

D) ensure that they always have enough funds on hand to meet their federal tax liabilities.

If a bank has a leverage ratio of 0.1 and a return on capital of 2%, what is its return on equity?

A) 0.2%

B) 2.1%

C) 5%

D) 20%

Which of the following statements about checking deposits is true?

A) It is a liability for both households and banks.

B) It is an asset for both households and banks.

C) It is an asset for households but a liability for a bank.

D) It is a liability for households but an asset for a bank.

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8. Your company issued bonds at a premium. Which of the following statements is NOT true?
A. The contra account, premium on bonds payable, is amortized each year by shifting part of its balance to interest expense.
B. On the date of issuance, the stated interest rate was greater than the market interest rate.
C. As the current date approaches the maturity date, the carrying value of the bond approaches the face value of the bond.
D. The account used to record the premium has a normal debit balance.

9. Which of the following would help a company improve its quick ratio without necessarily lowering the liability risk to a creditor?
A. Borrowing money on a long-term note just before the end of the accounting period.
B. Shifting resources from long-term assets to short-term assets such as supplies and inventory.
C. Shifting obligations from long-term liabilities to short-term liabilities.
D. Acquiring inventory by issuing a long-term note.

10. Which of the following is not used to calculate the times interest earned ratio?
A. Net income.
B. Income tax expense.
C. Interest earned on investments.
D. Interest expense.

11. Which of the following statements regarding treasury stock is true?
A. When a company reissues treasury stock for more than it originally paid for the stock, it does not report a gain.
B. When a company purchases treasury stock or pays a dividend, it increases total stockholders' equity.
C. Treasury stock is reported as an asset on the balance sheet.
D. Treasury stock is reported as issued and outstanding stock.

16. Typically, all other things equal, a profitable company that pays little or no dividends:
A. is a bad investment.
B. will reinvest profits which can lead to greater growth potential.
C. will experience relatively stable stock prices over time.
D. will appeal to investors who desire distributions of profit.

17. If a corporation declares and distributes a 10% stock dividend on its common shares, the account debited is:
A. Dividends Payable.
B. Common Stock.
C. Share Capital.
D. Retained Earnings.

20. Limited Liability Companies (LLCs) are like general partnerships in that:
A. income tax is not paid by the company itself.
B. the business has a separate legal identity.
C. liability is limited.
D. amounts paid to the owners are recorded as salaries expense.

21. Which of the following statements regarding financing activities is NOT true?
A. Cash dividends paid to a company's stockholders are reported as cash outflows from financing activities.
B. When a company issues stock for cash, it reports a cash inflow from financing activities.
C. When a company repurchases stock with cash, it reports a cash outflow for financing activities.
D. When a company repays a loan, it reports a cash outflow from investing activities.

22. Which of the following statements regarding quality of income ratio is NOT true?
A. A quality of income ratio will increase if a company's working capital management allows current assets such as inventory to increase out of control.
B. Variations in the ratio can be seasonal and are the result of sales fluctuations rather than reasons for alarm.
C. The quality of income ratio measures the portion of income that was generated in cash.
D. The quality of income ratio is useful when compared to industry competitors or to prior periods.

23. Which of the following types of information is not provided by the statement of cash flows?
A. Company management of current assets and liabilities.
B. Expenditures on long-term assets.
C. Current profitability as measured by specific revenues and expenses.
D. Reliance on external financing.

24. Cash and cash equivalents include:
A. assets that have stable long-term value.
B. assets that are short-term, highly liquid, and are purchased within three months of maturity.
C. assets that consistently grow in value over the long run.
D. assets that are expected to be used up within a year.

ADMS 3595 Chapter Notes - Chapter 14: Effective Interest Rate, Unsecured Debt, Amortization Schedule

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