Question

Company Baldwin invested $42,140,000 in plant and equipment last year. The plant investment was funded with bonds at a face value of $30,967,831 at 13.9% interest, and equity of $11,172,169. Depreciation is 15 years straight line. For this transaction alone which of the following statements are true? Select: 5

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

On the Balance sheet, Long Term Debt changed by $30,967,831.

Since the new plant was funded with debt and equity, on the Balance sheet Retained Earnings decreased by $11,172,169, the difference between the investment $42,140,000 and the bond $30,967,831.

Cash went up when the Bond was issued by $30,967,831.

Cash was pulled from retained earnings to cover the $11,172,169 difference between the plant purchase and bond issue.

Depreciation increased by $2,809,333.

Cash went down by $42,140,000 when the plant was purchased.

On the Balance sheet, Plant & Equipment increased by $42,140,000.

Answer 1

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The following statements are true with respect to the given scenario:

On the Balance sheet, Long Term Debt changed by $30,967,831 - TRUE

Cash went up when the Bond was issued by $30,967,831 - TRUE

Depreciation increased by $2,809,333 - TRUE

Cash went down by $42,140,000 when the plant was purchased - TRUE

On the Balance sheet, Plant & Equipment increased by $42,140,000 - TRUE