Suppose Baldwin invested in plant and equipment last year. The plant investment
ID: 338729 • Letter: S
Question
Suppose Baldwin invested in plant and equipment last year. The plant investment was funded with bonds at a face value of $8,000,000 at 12.5% interest and equity of $4,200,000. Depreciation is 15 years straight line. For this transaction alone, which of the following statements are true (select 3 answers)?
A.) Depreciation increased by $813,333.
B.) On the Balance Sheet, Long Term Debt changed by $8,000,000.
C.) Cash went up when the bond was issued by $8,000,000.
D.) Cash was pulled from Retained Earnings to cover the $4,200,000 difference between plant purchase and bond issue.
E.) Buying the plant had no net effect on the Cash account because the plant was paid for by the bond plus Retained Earnings.
F.) Cash went down by the amount of the plant purchase.
G.) Since the new plant was funded with debt and equity, on the Balance Sheet, Retained Earnings decreased by $4,200,000, the difference between the investment and the bond issue.
H.) On the Balance Sheet, Plant & Equipment increased by $12,200,000.
Explanation / Answer
Suppose Baldwin invested in plant and equipment last year. The plant investment was funded with bonds at a face value of $8,000,000 at 12.5% interest and equity of $4,200,000. Depreciation is 15 years straight line. For this transaction alone, which of the following statements are true (select 3 answers)?
A.) Depreciation increased by $813,333.
B.) On the Balance Sheet, Long Term Debt changed by $8,000,000.
C.) Cash went up when the bond was issued by $8,000,000.
D.) Cash was pulled from Retained Earnings to cover the $4,200,000 difference between plant purchase and bond issue.
E.) Buying the plant had no net effect on the Cash account because the plant was paid for by the bond plus Retained Earnings.
F.) Cash went down by the amount of the plant purchase.
G.) Since the new plant was funded with debt and equity, on the Balance Sheet, Retained Earnings decreased by $4,200,000, the difference between the investment and the bond issue.
H.) On the Balance Sheet, Plant & Equipment increased by $12,200,000.
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