4 Questions about fin

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Q1:

How is “Preferred Stock” best differentiated from Common Stock?

C) It typically does not have voting rights.
A) Institutional investors overwhelmingly choose it over Common Stock.
B) It represents shares of an entity’s founder. For example, preferred shares of Apple stock are those originally owned by Steve Jobs.
F) None of the listed answers.
E) B and C.
G) C and D.
D) It may include contractual components.

Q2:

Morgan Stanley’s “Merchant Banking” division uses the firm’s capital to make money by buying and selling stocks and bonds, and making loans. In August 2008, assuming the firm had completed the Balance Sheet Valuation of FNM discussed in the handout and in the text, the best way for the division to try to make money from FNM’s situation was to:

C) Buy FNM’s common stock.
F) B and C.
D) Sell short FNM’s common stock.
B) Buy FNM’s bonds.
A) Make loans to FNM.
E) A and B.

Q3:

Refer to FNM’s last publically reported Balance Sheet before it was placed into Conservatorship:
FNM Balance Sheet (000 UON) Accrual
PERIOD ENDING 6/30/08 Accounting

Total Current Assets 62,485,000

Mortgages 774,145,000
Property Plant and Equipment 5,995,000
Other Assets 22,689,000
Deferred Tax Assets 20,604,000
Total Assets 885,918,000

Current Liabilities
Accounts Payable 6,309,000
Short/Current Long Term Debt 240,666,000
Total Current Liabilities 246,975,000

Long Term Debt 577,432,000
Other Liabilities 20,285,000
Total Liabilities 844,692,000

Total Stockholder Equity 41,226,000

Total Liabilities + Equity 885,918,000

If you believed that FNM’s mortgage assets, as reported, were inflated by 70,000,000K, what journal entries would you use to correct this error? Choose all the correct entries.

A. cr Total Assets 70,000,000
B. cr Cash 70,000,000
C. dr Mortgages 70,000,000

D. dr Mortgage Write Down Expense 70,000,000
E. dr Short/Current Long Term Debt 70,000,000

F. cr Mortgage Write Down Expense 70,000,000
G. cr Mortgages 70,000,000

Q4:

Refer to the information provided in Question 3 above. After you have corrected the value of FNM’s mortgage assets, what is the value of the firm’s equity? Record you answer in units of K (IE: the units given on the Question-3 Balance Sheet), and round your answer to zero decimal places. As appropriate, record a negative number like this, with a leading minus sign “-270015”.

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