Chapter 7, Long-Term Debt-Paying Ability Video Solutions, Financial Reporting and Analysis: Using Financial Accounting Information

02:09

Problem 1

Is profitability important to a firm's long-term debtpaying ability? Discuss.

Kaylee Mcclellan

Numerade Educator

Problem 2

List the two approaches to examining a firm's longterm debt-paying ability. Discuss why each of these approaches gives an important view of a firm's ability to carry debt.

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01:34

Problem 3

What type of times interest earned ratio would be desirable? What type would not be desirable?

Gregory Higby

Numerade Educator

01:07

Problem 4

Would you expect an auto manufacturer to finance a relatively high proportion of its long-term funds from debt? Discuss.

Kaylee Mcclellan

Numerade Educator

01:14

Problem 5

Would you expect a telephone company to have a high debt ratio? Discuss.

Jasper Baltz

Numerade Educator

01:07

Problem 6

Why should capitalized interest be added to interest expense when computing times interest earned?

Bahar Tehranipoor

Numerade Educator

Problem 7

Discuss how noncash charges for depreciation, depletion, and amortization can be used to obtain a shortrun view of times interest earned.

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Problem 8

Why is it difficult to determine the value of assets?

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Problem 9

Is it feasible to get a precise measurement of the funds that could be available from long-term assets to pay long-term debts? Discuss.

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Problem 10

One of the ratios used to indicate long-term debtpaying ability compares total liabilities to total assets. What is the intent of this ratio? How precise is this ratio in achieving its intent?

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Problem 11

For a given firm, would you expect the debt ratio to be as high as the debt/equity ratio? Explain.

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Problem 12

Explain how the debt/equity ratio indicates the same relative long-term debt-paying ability as does the debt ratio, only in a different form.

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Problem 13

Why is it important to compare long-term debt ratios of a given firm with industry averages?

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Problem 14

How should lessees account for operating leases? Capital leases? Include both income statement and balance sheet accounts.

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Problem 15

A firm with substantial leased assets that have not been capitalized may be overstating its long-term debt-paying ability. Explain.

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07:15

Problem 16

Capital leases that have not been capitalized will decrease the times interest earned ratio. Comment.

Puneet Prajapati

Numerade Educator

Problem 17

Indicate the status of pension liabilities under the Employee Retirement Income Security Act.

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Problem 18

Why is the vesting provision an important provision of a pension plan? How has the Employee Retirement Income Security Act influenced vesting periods?

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01:29

Problem 19

Indicate the risk to a company if it withdraws from a multiemployer pension plan or if the multiemployer pension plan is terminated.

James Kiss

Numerade Educator

02:44

Operating leases are not reflected on the balance sheet, but they are reflected on the income statement in the rent expense. Comment on why an interest expense figure that relates to long-term operating leases should be considered when determining a fixed charge coverage.

Puneet Prajapati

Numerade Educator

Problem 21

What portion of net worth can the federal government require a company to use to pay for pension obligations?

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Problem 22

Consider the debt ratio. Explain a position for including short-term liabilities in the debt ratio. Explain a position for excluding short-term liabilities from the debt ratio. Which of these approaches would be more conservative?

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08:35

Problem 23

Consider the accounts of bonds payable and reserve for rebuilding furnaces. Explain how one of these accounts could be considered a firm liability and the other could be considered a soft liability.

Puneet Prajapati

Numerade Educator

Problem 24

Explain why deferred taxes that are disclosed as long-term liabilities may not result in actual cash outlays in the future.

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Problem 25

A firm has a high current debt/net worth ratio in relation to prior years, competitors, and the industry. Comment on what this tentatively indicates.

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01:10

Problem 26

Comment on the implications of relying on a greater proportion of short-term debt in relation to long-term debt.

Nick Johnson

Numerade Educator

05:45

Problem 27

When a firm guarantees a bank loan for a joint venture in which it participates and the joint venture is handled as an investment, then the overall potential debt position will not be obvious from the face of the balance sheet. Comment.

Mihir Nayar

Numerade Educator

03:31

Problem 28

When examining financial statements, a note that describes contingencies should be reviewed closely for possible significant liabilities that are not disclosed on the face of the balance sheet. Comment.

Jennifer Stoner

Numerade Educator

Financial Reporting and Analysis: Using Financial Accounting Information

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