Exam 7: Long-Term Debt-Paying Ability

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A) bonds payable
B) reserves for rebuilding furnaces
C) deferred taxes
D) minority shareholders' interests
E) redeemable preferred stock

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A) is a balance sheet indication of debt carrying ability
B) is an income statement indication of debt carrying ability
C) is a liquidity ratio
D) frequently includes research and development
E) computation is standard from firm to firm

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A) A capital lease is handled as if the lessee bought the asset.
B) The leased asset is in the fixed assets and the related obligation is included in liabilities.
C) On the balance sheet, the capitalized asset amount will not usually agree with the capitalized liability amount because the liability is reduced by payments, and the asset is reduced by depreciation taken.
D) Usually, a company depreciates capitalized leases faster than payments are made.
E) On the balance sheet, the capitalized asset amount will usually be higher than the capitalized liability amount.

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A) preferred stock has no maturity date
B) the debt will never become due
C) the firm will be able to repay the principal when due
D) the principal can be refinanced
E) none of the answers are correct

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A) Smith Company's times interest earned should be lower than Jones.
B) Jones obviously has too much debt when compared to its competitor.
C) Jones should sell more stock and use less debt.
D) Smith has five times better long-term borrowing ability than Jones.
E) Not enough information to determine if any of the answers are correct.

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