ACCT 607 Assignment Help 7

ACCT 607 Assignment Help 7 | Case Study 7 | Kogod School Of Business American University 

Applied Case Assignment 7

Bonus case score didn't replace any prior case grades.

Bonus case - Each question is worth 2 points. Bonus case score = 5.

Bonus 1 (-2) Total principle or face value of debt per Note 8 for 2014 is $7,041 million.

Bonus 2a. (-1) Yes, but what are the terms?  As per Note 8: The covenants are described as limitations on the company’s ability to encumber assets and a maximum leverage ratio.

Bonus 2.b. (-1) Partial credit for your logic. ROE decomposition leverage = Assets/Equity.  In this case, the covenant ratio per the agreement reverses prior adjustments to equity related to post-retirement benefit plans.

Bonus 3 (-1) These notes were paid at maturity so any premium or discount would have been fully amortized and therefore would have been at par value.

Case 7: Questions 1 & 4 are worth 3 points each and questions 2 & 3 are worth 2 points each.

4a. (-1) No journal entry required for a stock split.

4b. (-.5) (partial credit awarded, amount incorrect) The journal entry for a large stock dividend is to Debit Retained Earnings for the par value and Credit Common Stock for the par value.  Since it was a 100% dividend then the amounts in the common stock accounts will double (a 100% increase in stock shares multiplied by the existing par value of the stock) So looking at the balance sheet (59+12=$71) Debit Retained Earnings for 71 and Credit Common Stock for 71.

4c (-.5). (Partial credit awarded) A 100% stock dividend should have the same effect on stock price as a 2 for 1 stock split.  The market should react and reduce the market price by half in both of those situations.  There is a difference in accounting for a stock dividend and a stock split which you mentioned.  There is also a difference in terms of voting rights as this 100% stock dividend is non-voting shares but the 2 for 1 split results in 2 voting shares for every 1 share held before the split.