Chapter 1: The Equity Method of Accounting for Investments 1. There are three ways that a company may account for its investments in other companies. The method of accounting is determined by the degree of influence or control that the investor has over the investee: Criterion Ownership Level Accounting Method Inability to significantly influence Less than 20% Fair value or cost Ability to significantly influence 20% - 50% Equity method or fair value Control (through voting power) More than
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Answer: Managerial accounting Answers: Managerial accounting Financial accounting Cost accounting Revenue cycle Question 2 20 out of 20 points In accouting, Duality means: Selected Answer: Assets = Liabilities + Equity Answers: Assets = Equity Equity = Assets + Liabilities Assets = Liabilities + Equity Liabilities = Equity + Assets Question 3 In ________________, transactions are recognized when that are received or
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enables accounting to quantify (measure) economic events. 9. The three basic forms of business organizations are: (1) proprietorship, (2) partnership, and (3) corporation. 11. The basic accounting equation is Assets = Liabilities + Owner’s Equity. 13. The liabilities are: (b) Accounts payable and (g) Salaries and wages payable. 15. Business transactions are the economic events of the enterprise recorded by accountants because they affect the basic accounting equation. (a) The
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unreasonably high. Usually, companies prefer raising capital in debt more than equity, because tax shield derived from debt makes debt more attractive to stock issue. And there will be an opportunity cost when a company holds a large sum of cash instead of investing it. What’s more, the shares will scatter if Blaine is all financed by issuing stocks. So there may be a potential problem that some private equity firm may purchase all of Blaine’s outstanding shares and takeover the BKI. In this
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This lecture will explore the determinants of the mix of debt and equity the firm uses to finance its operations. • We will first explore the situations under which capital structure is irrelevant to a firms operations. Examining these situations will allow us to explore how the following factors influence the mix of debt and equity a firm uses to finance its operations. • TAXES • RISK • FINANCIAL SLACK • ASSET CHARACTERISTICS • COSTS OF FINANCIAL DISTRESS. Capital Structure - 1 2 The Capital
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purchasers preferred commodities which are produced by firms to those not produced. However, transaction costs are involved in using the market. The price of the goods is actually lower than the cost of getting a goods or services through the market. Other necessary costs likes search & information costs, policing & enforcement costs, bargaining costs, and keeping trade secrets, can be added to the cost of procuring something from another party. This suggests that firms will emerge which can internalise
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Executive Summary The footwear industry is highly competitive industry with fairly stable profit margins. Active Gear is a profitable firm in the industry; however Active Gear is a smaller firm than many other competitors and its small size is becoming a competitive disadvantage. The rise of large retailers has also endangered Active Gear s growth. Mercury Athletic Footwear designs and distributes athletic and casual footwear dominantly to the youth market. Mercury competes in four main product lines:
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| | | Cost of Goods | | | 180,000 | | Gross Profit | | | | 120,000 | Less Expenses | | | | | Selling, General and administrative expenses | 24,000 | | Interest Expenses | | | 16,000 | | Profit before tax | | | | 80,000 | Income Tax Expense | | 28,000 | | Net Profit | | | | 52,000 | Statement of changes in owners’ equity Sunshine Ltd | | | Statement of Changes in Owners’ Equity | |
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Total Assets This measures the extent the firm uses debt to finance asset acquisitions. Debt to tangible net worth = Total Debt Net Worth - Intangibles Debt to equity = Total long term debt Total Stockowner's Equity Total Invested Capital = Book value of debt + Book value of equity. Times Interest Earned = EBIT Interest Payments Shows the ability of the firm to meet their fixed interest payment obligations out of current earnings. Earning debt
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a financial analyst for AirJet Best Parts, Inc. The company is considering a capital investment in a new machine and you are in charge of making a recommendation on the purchase based on (1) a given rate of return of 15% (Task 4) and (2) the firm’s cost of capital (Task 5). Task 4. Capital Budgeting for a New Machine A few months have now passed and AirJet Best Parts, Inc. is considering the purchase on a new machine that will increase the production of a special component significantly. The
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