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Ebook Horngren’s accounting (10/E): Part 2

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Part 2 book “Horngren’s accounting” has contents: The statement of cash flows, financial statement analysis, introduction to managerial accounting, process costing, cost allocation and responsibility accounting, flexible budgets and standard cost systems, master budgets, and other contents. | www.downloadslide.net 14 Long-Term Liabilities Should the Business Take on Additional Debt? S ophie Animations Studios, Inc. specializes in creating animated feature films for children and young-minded adults. The studio was started by founders Steve Lasseter and Lee Bird and has grown to produce many notable films. The corporation’s stock is currently sold on a national stock exchange, and the company is widely respected for its consistent earnings each year. The corporation plans on expanding its existing operations by building a new studio in Canada that will produce short movies and TV specials. In order to fund this expansion, the corporation is considering several options. One option is for the corporation to issue additional stock to raise the necessary cash. Another option is for the corporation to take on additional debt. As majority stockholders, Steve and Lee have expressed their concern over issuing additional shares of stock. The stockholders are concerned that the additional stock will decrease their ownership percentage in the corporation and also cause the market value of the stock to decrease. Due to these concerns, the corporation has decided that the best option would be to explore ways to secure the cash needed for expansion by taking on additional debt. Sophie Animations Studios is currently evaluating different types of long-term liability options such as long-term notes payable and mortgages payable. These debts will most likely be secured by the studio building and will offer a reasonable interest rate and time period for repayment. In addition, Sophie Animations Studios is considering a special type of long-term liability, called a bonds payable. A bonds payable is issued on a bond market and typically provides a larger cash inflow than notes payable and mortgages payable do. In addition, bonds payable also often provide a longer time period for repayment, some even lasting for as long as 100 years. Each of these long-term liabilities .