It is January 2nd and senior management of Digby meets to determine their invest

Question

It is January 2nd and senior management of Digby meets to determine their investment plan for the year. They decide to fully fund a plant and equipment purchase by issuing $10,000,000 in bonds. Assume the bonds are issued at face value and leverage changes to 2.7. Which of the following statements are true? Select all that apply. Select: 3 Working capital will remain the same at $13,744,967 Total liabilities will be $130,638,342 percent Total Assets will rise to $210,022,044 The total investment for Digby will be $14,313,956 Digby’s long-term debt will rise by $10,000,000

Explanation / Answer

Answer :- Option C). Total Assets will rise to $210,022,044.

Option E). Digby’s long-term debt will rise by $10,000,000.

Explanation :- When the plant and equipment is purchased by issuing the bond then the following journal entry would be passed :-

Plant and Equipment (Asset) A/c Dr.

To Bonds payable (Long-term debt) A/c

1000000

1000000

Accordingly, The long-term debt of Digby will rise by $10,000,000 & Total assets will rise to $ 210,022,044.

General journal Debit ($) Credit ($)

Plant and Equipment (Asset) A/c Dr.

To Bonds payable (Long-term debt) A/c

1000000

1000000

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