Question

Company Baldwin invested $45,300,000 in plant and equipment last year. The plant investment was funded with bonds at a face value of $24,178,667 at 13.6% interest, and equity of $21,121,333. Depreciation is 15 years straight line. For this transaction alone which of the following statements are true?

[X ] On the Balance sheet, Plant & Equipment increased by $45,300,000.

[X] On the Balance sheet, Long Term Debt changed by $24,178,667.

[ ] Since the new plant was funded with debt and equity, on the Balance sheet Retained Earnings decreased by $21,121,333, the difference between the investment $45,300,000 and the bond $24,178,667.

[X] Depreciation increased by $3,020,000.

[ ] Buying the plant had no net effect on the Cash account, because the plant was paid for by the bond plus retained earnings.

X ] Cash went up when the Bond was issued by $24,178,667.

[ X] Cash went down by $45,300,000 when the plant was purchased.

[ ] Cash decreased $21,121,333 to cover the reduction in equity.

Answer 1

TRUE = On the Balance sheet, Plant & Equipment increased by $45,300,000.

TRUE = On the Balance sheet, Long Term Debt changed by $24,178,667.

WRONG = Since the new plant was funded with debt and equity, on the Balance sheet Retained Earnings decreased by $21,121,333, the difference between the investment $45,300,000 and the bond $24,178,667.

TRUE : Depreciation increased by $3,020,000.

WRONG : Buying the plant had no net effect on the Cash account, because the plant was paid for by the bond plus retained earnings.

TRUE : Cash went up when the Bond was issued by $24,178,667.

TRUE : Cash went down by $45,300,000 when the plant was purchased.

WRONG :Cash decreased $21,121,333 to cover the reduction in equity.