Discuss any of these questions. They should help you on your final exam. Explain
ID: 2627766 • Letter: D
Question
Discuss any of these questions.
They should help you on your final exam.
Explain Lease vs. Buy Why is leasing often preferable to buying
Explain Financial Accounting Standards Board (FASB) Statement #13
Explain some of the terms of operating lease What is the primary test of feasibility in a reorganization
Why would a company call its outstanding bonds? What is the purpose of Chapter 7 of the Bankruptcy Act
What is the effect of heavy use of off-balance sheet lease financing?
What does the basic doctrine of fairness under bankruptcy provisions state?
What would be the priority of the claims as to the distribution of assets in a liquidation under Chapter 7 of the Bankruptcy Act?
1 is the highest claim, 5 is the lowest.
(1) Trustees' costs to administer and operate the firm.
(2) Common stockholders.
(3) General, or unsecured, creditors.
(4) Secured creditors, who have a claim to the proceeds from the sale of specific property pledged to secure a loan.
(5) Taxes due to federal and state governments. Which brings in funds faster, private placement or public offering.
What role does bankruptcy play in settling labor disputes and product liability suits?
Explanation / Answer
A form of financing in which large capital expenditures are kept off of a company's balance sheet through various classification methods. Companies will often use off-balance-sheet financing to keep their debt to equity (D/E) and leverage ratios low, especially if the inclusion of a large expenditure would break negative debt covenants.
Contrast to loans, debt and equity, which do appear on the balance sheet. Examples of off-balance-sheet financing include joint ventures, research and development partnerships, and operating leases (rather than purchases of capital equipment).
Operating leases are one of the most common forms of off-balance-sheet financing. In these cases, the asset itself is kept on the lessor's balance sheet, and the lessee reports only the required rental expense for use of the asset. Generally Accepted Accounting Principles in the U.S. have set numerous rules for companies to follow in determining whether a lease should be capitalized (included on the balance sheet) or expensed.
This term came into popular use during the Enron bankruptcy. Many of the energy traders' problems stemmed from setting up inappropriate off-balance-sheet entities.
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