Company Baldwin invested $50,540,000 in plant and equipment last year. The plant

Question

Company Baldwin invested $50,540,000 in plant and equipment last year. The plant investment was funded with bonds at a face value of $34,603,544 at 13.9% interest, and equity of $15,936,456. Depreciation is 15 years straight line. For this transaction alone which of the following statements are true?

Select: 5

-Depreciation increased by $3,369,333.

-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 $34,603,544.

-Cash went up when the Bond was issued by $34,603,544.

-Cash was pulled from retained earnings to cover the $15,936,456 difference between the plant purchase and bond issue.

-Cash went down by $50,540,000 when the plant was purchased.

-Since the new plant was funded with debt and equity, on the Balance sheet Retained Earnings decreased by $15,936,456, the difference between the investment $50,540,000 and the bond $34,603,544.

-On the Balance sheet, Plant & Equipment increased by $50,540,000.

Explanation / Answer

Invested in Plant & Equipment 50540000 Issue of Bonds payable $34,603,544 Difference $15,936,456 Equity $15,936,456 Depreciation 3369333 50540000/15 The true statements are -Depreciation increased by $3,369,333. On the Balance sheet, Long Term Debt changed by $34,603,544 Cash was pulled from retained earnings to cover the $15,936,456 difference between the plant purchase and bond issue. Since the new plant was funded with debt and equity, on the Balance sheet Retained Earnings decreased by $15,936,456, the difference between the investment $50,540,000 and the bond $34,603,544. On the Balance sheet, Plant & Equipment increased by $50,540,000.

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