D) bond interest is deductible tor tax purpuss, 14. Which of the following is no
ID: 2597173 • Letter: D
Question
D) bond interest is deductible tor tax purpuss, 14. Which of the following is not a difference between a bond and a share of stock? A bond is a liability of an entity, while a share of stock is a unit of ownership. A company must generally make specified interest payment at specified times on bond, while payments to stockholders are made only when declared. A bond has a specified maturity date, while stock does not. A) C) D) Bondholders would not receive any payments if a business is dissolved, while y stockholders would. 15. The reasons that favor financing by issuing bonds rather than stock do not include: A) B) C) it retains control of the business. it improves the ability to withstand a major loss. it may cost less since interest is tax deductible and dividends are not. it may increase stockholders' earnings through favorable financial leverage. D) Jem Co. issued $900,000 face value of 12% bonds at 100 on June 1, 2012. Interest is payable semiannually on April 1 and October 1. If the company has an accounting year ending on December 31, it should report interest expense for 2012 of: A) $108,000 B) $ 63,000 C) $ 54,000 D) $ 36,000 16, 17. A bond issued at a discount indicates that at the date of issue: n loutar than the nrevailing market rate of interest on similarExplanation / Answer
14) D
15) D, as bonds issue negatively affects the company's Earning per share due to increase in degree of financial leverage caused by higher interest payments.
16) B, 12%*$900000*7/12=$63000
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