Business College
Answers
Answer 1
Answer:
Use rerospective valuation and then begin to use Fair value valuation of the investment account from 2019 and beyond
Explanation:
First, it should be noted that Jordan will make use of different methods to account for change in its account.
A first method will apply to a retrospective adjustment method to make relevant changes in the investment account
The second step is to now use the fair-value method for his account from 2019 and beyond.
The idea of using a retrospective method is to engage or apply a new accounting pricnciple as though it has always been applied, using the retrospective method will assist Jordan to compare teh year 2018 where it had significant influence over the opeations of Nico to 2019 and future years when it begins to use the fair-value method of investment valuation.
Related Questions
California supplies the United States with 80% of its eating oranges. In late 1998, four days of freezing temperatures in the state's Central Valley substantially damaged the orange crop. In early 1999, Food Lion, with 1,208 grocery stores mostly in the Southeast, said its prices for fresh oranges would rise by 20% to 30%, which was less than the 100% increase it had to pay for the oranges. Explain why the price to consumers did not rise by the full amount of Food Lion's price increase. The price to consumers rose by 20% to 30% instead of the full 100% because A. the elasticity of supply was perfectly elastic. B. the demand curve was vertical. C. as prices increased, consumers demanded less output. D. the elasticity of demand was perfectly inelastic. E. consumers were not sensitive to prices.
Answers
Answer:
C. as prices increased, consumers demanded less output.
Explanation:
Elasticity of demand measures the responsiveness of quantity demanded to changes in price.
If demand is elastic, it means quantity demanded is more sensitive to changes in price.
If demand is inelastic, it means that quantity demanded is less sensitive to changes in price.
If demand is perfectly elastic, it means that consumers would demanding a product if price is increased. It is represented by a horizontal demand curve.
If demand is perfectly inelastic, it means that quantity demanded doesn't change regardless of changes in price. It is represented by a vertical demand curve.
The elasticity of supply measures the degree of responsiveness of quantity supplied to changes in price.
If supply is elastic, it means quantity supplied is more sensitive to changes in price.
If supply is inelastic, it means that quantity supplied is less sensitive to changes in price.
If supply is perfectly elastic, it means that producers would stop supplying a product if price is increased. It is represented by a horizontal supply curve.
If supply is perfectly inelastic, it means that quantity supplied doesn't change regardless of changes in price. It is represented by a vertical supply curve.
It is seen from the question that the burden of the damage to oranges is borne by the producers more than the consumers. This indicates that the elasticity of demand is more price elastic .
I hope my answer helps you
The current dividend yield of CyTrade’s stock is 3%. The company just paid a $1.48 annual dividend today and will pay a dividend of $1.54 next year. The dividend growth rate is expected to remain at the current level. What is the required rate of return on the stock?
Answers
Answer:
The required rate of return on the stock is 7.1%.
Explanation:
First we will use the dividend yield to find the current stock price.
Dividend yield= Dividend per share/ Share price.
0.03= 1.48/Share price
Share price = 1.48/0.03= 49.33
Next we will find the growth rate of the stock by using next year and this years dividend.
Growth = (Dividend 1-Dividend 0)/Dividend 1
= (1.54-1.48)/1.48=0.04=4%
Now we will input these values in the Gordon growth model in order to find the required return of the stock. The formula is
Stock price= Dividend 1/Required return on equity- Growth rate
49.33=1.54/Required return - 0.04
49.33 required return -1.9732=1.54
49.33 Required return = 1.54+1.9732
Required return = 3.5132/49.33
Required return =0.071
=7.1%
A payday loan company has decided to open several new locations in the city. To decide where to open these locations it hires consultants and decides to pay them per location opened. The company should expect to see a. A small number of badly selected stores b. A small number of well selected stores c. A large number of badly selected stores d. A large number of well selected stores
Answers
Answer:
c. A large number of badly selected stores.
Explanation:
A "payday loan company" is a type of lending company that loans money to people according to their salary and record of employment. This is also known as a "salary loan" which a person can borrow and pay on his next salary day. Most of the time, the interest of such loan is high thus, it becomes essential for jurisdictions to have a limit on the APR (annual percentage rate) being charged.
In the situation above, the payday loan company focused on paying the consultants according to the locations that they are able to open. So, this means that the consultants will not focus much on the profitability of the stores. They will then try to open in many locations within the city. This will then result to a large number of badly selected stores.
So, the company will have to expect that many of the stores will not be able to meet the company's expectations at the end of the fiscal year. They have to change their way to give incentives to the consultants.
On September 30, Silver Corporation, a calendar year taxpayer, sold a parcel of land (basis of $400,000) for a $1 million note. The note is payable in five installments, with the first payment due next year. Because Silver did not elect out of the installment method, none of the $600,000 gain is taxed this year. Silver Corporation had a $300,000 deficit in accumulated E&P at the beginning of the year. Before considering the effect of the land sale, Silver had a deficit in current E&P of $50,000. Sam, the sole shareholder of Silver, has a basis of $200,000 in his stock. If silver distributes $900,000 to Sam on December 31, How much income must he report for tax purposes?
Answers
Answer:
Sam must report $700,000 distribution from Silver on his Income report.
Explanation:
The sale of the land is made by the corporation and the corporation is a tax payer therefore any gains and losses are for the company to pay tax on.
The deficits in the E&P are for Silver to take into account when about to pay taxes.
The basis of $200,000 is not income but cost and subtracted on the distribution income as is for Sam.
On October 10, the stockholders’ equity of Sherman Systems appears as follows. Common stock–$10 par value, 86,000 shares authorized, issued, and outstanding $ 860,000 Paid-in capital in excess of par value, common stock 286,000 Retained earnings 976,000 Total stockholders’ equity $ 2,122,000
Answers
Answer:
treasury stock 249,600 debit
cash 249,600 credit
cash 60,750 debit
treasury stocks 52,650 credit
additional paid-in TS 8,100 credit
cash 171,700 debit
additional paid-in TS 5,050 debit
treasury stocks 176,750 credit
Quesions
Record journal entries
Additional missing information:
Prepare journal entries to record the following transactions for Sherman Systems. a. Purchased 6.400 shares of its own common stock at $39 per share on October 11.
b. Sold 1,350 treasury shares on November 1 for $45 cash per share
c. Sold all remaining treasury shares on November 25 for $34 cash per share
Explanation:
we record at cost when the purchase is made:
6,400 shares x $39 each = 249,600
Then, at sale we compare the cahs proceed with our cost and crease an additional paid-in treasury stock if needed
we sale 1,350 at $45 = 60,750
cost 1,350 x $39 = 52,650
additional paid-in treasury stocks 8,100
6,400 - 1,350 = 5,050 shares in treasury remaining
IF sale occur below csot, we decrease the paid-in TS or retained earnings.
5,050 x $34 = 171,700
5,050 x $35 = 176,750
decrease to additional paid-in TS 5,050
Your pro forma income statement shows sales of $ 966,000, cost of goods sold as $ 522,000, depreciation expense of $ 105,000, and taxes of $ 135,600 due to a tax rate of 40 %. What are your pro forma earnings? What is your pro forma free cash flow?
Answers
Answer:
The pro forma earnings are $203,400
The pro forma free cash flow is $308,400
Explanation:
The pro forma income statement shows sales of $966,000, cost of goods sold as $522,000, depreciation expense of $105,000, and taxes of $135,600.
The pro forma earnings = Sales - cost of goods sold - depreciation expense - taxes = $966,000 - $522,000 - $105,000 - $135,600 = $203,400
The pro forma free cash flow = Sales - cost of goods sold - taxes = $966,000 - $522,000 - $135,600 = $308,400
Note: Depreciation is a non-cash accounting expense, so it doesn't involve cash flow.
A major tropical storm hits your area of business and creates a flood that destroys several servers containing vital data as well as all the backups of that data in that location. But, thanks to your DRP, you are able to restore the data. How is this possible
Answers
Options:
A. DRP developers deploy a team of SMEs to re-create the data.
B. The backup policy specified storing backups off-site.
C. DRP developers are trained to re-create data based on their knowledge of the organization.
D The backup policy specified steps to restoring damaged servers in the event of a disaster.
Answer:D The backup policy specified steps to restoring damaged servers in the event of a disaster.
Explanation: DRP(Disaster recovery plan) is a plan put in place by organizations or persons in order to ensure the continuity of an organisation or business entity in the case of any disaster or eventualities. Disaster recovery plan can be implemented in both the IT(Information technology) infrastructures,Loss of data,buildings and other physical infrastructures etc.
The DRP back-up policy specified steps to restoring damaged servers in the event of a disaster that is the best way one can recover from the Damage.
The income statement for the Carolina Service Company for the year ended December 31, 2017, appears below. Sales revenue $670,000 Cost of goods sold 390,000 Gross profit 280,000 Expenses 180,000 * Net income $100,000 *Includes $25,000 of interest expense and $20,000 of income tax expense. Additional information: 1. Common stock outstanding on January 1, 2017, was 50,000 shares. On July 1, 2017, 10,000 more shares were issued. 2. The market price of Carolina's stock was $22 at the end of 2017. 3. Cash dividends of $35,000 were paid, $5,000 of which were paid to preferred stockholders. Compute the following ratios for 2017: (Round earnings per share to 2 decimal places, e.g. 2.25 and all other answers to 1 decimal place e.g. 15.5.) (a) Earnings per share $ (b) Price-earnings times (c) Times interest earned times
Answers
Answer:
(a) $1.73
(b) 12.74
(c) 5.80
Explanation:
Given that,
Sales revenue = $670,000
Cost of goods sold = 390,000
Gross profit = 280,000
Expenses = 180,000
Net income = $100,000
Interest expense = $25,000
Income tax expense = $20,000
(a) Earnings per share:
= (Net income - Preferred dividend) ÷ Weighted average common stock
= ($100,000 - $5,000) ÷ 55,000
= $95,000 ÷ 55,000
= $1.73
(b) Price-earnings:
= Stock price ÷ Earnings per share
= $22 ÷ $1.73
= 12.74
(c) Income before interest and taxes:
= Net income + Interest expense + Income taxes
= $100,000 + $25,000 + $20,000
= $145,000
Times interest earned:
= Income before interest and taxes ÷ Interest expenses
= $145,000 ÷ $25,000
= 5.80
Which of the following statements is correct? Financial statements are prepared before adjustments to ensure that all accounts have been brought to their correct balance. Financial statements are prepared before adjustments to ensure that debits equal credits before beginning the adjustment process. Financial statements are prepared before adjustments to ensure that debits equal credits before concluding the adjustment process. Financial statements are prepared after adjustments to ensure that all accounts have been brought to their correct balance.
Answers
Answer:Financial statements are prepared after adjustments to ensure that all accounts have been brought to their correct balance.
Explanation: Financial statements are records or documents prepared to give details of the movement of funds in and out of an organisation. Financial statements are vital to the auditors and the business it helps business organisations to determine the true status of affairs in the company,it also helps to ensure that frauds are detected and prevented.
Before preparing Financial statements it is essential that all adjustments are made to ensure that all accounts have been brought to their correct balance.
Which of the following statement(s) is(are) true regarding the selection of a portfolio from those that lie on the capital allocation line? I) Less risk-averse investors will invest more in the risk-free security and less in the optimal risky portfolio than more risk-averse investors. II) More risk-averse investors will invest less in the optimal risky portfolio and more in the risk-free security than less risk-averse investors. III) Investors choose the portfolio that maximizes their expected utility.
Answers
Answer:II) More risk-averse investors will invest less in the optimal risky portfolio and more in the risk-free security than less risk-averse investors. III) Investors choose the portfolio that maximizes their expected utility.
Explanation:The capital allocation line is a line created in a graph by investors in an economy to display or identify the potential risks involved in taking risky decisions. This line is one the determining factors to ensure that the investor has adequate knowledge about the risky nature of a capital investment.
Investors generally choose portfolios that guarantee maximum profits with reduced chances of loss. More risk averse investor will choose or opt for less risky portfolio.
Pete qualifies for a home office deduction. The amount of space devoted to business use is 300 square feet of the total 1,200 square feet in his apartment. Pete's total rent for the year is $9,600, and he pays utilities (other than telephone) of $2,500 for the year.Calculate Pete’s deduction for home office expenses before the gross income limitation. Rent $ ____________________
Utilities other than telephone ____________________
Total home office expenses $ ____________________
Answers
Answer:
Rent is $2400
utilities other than cellphone is $625
Total home office expenses is $3025
Explanation:
firstly we need to calculate the percentage of how much in total does the office take in the apartment so we will say (300 square feet/1200 square feet) x 100
which is 25% so then to get the rental expense of the office we will say :
25%x$9600 = $2400 we say 25% which is office space in the apartment multiplied by the total apartment rental to get the office rent expense.
Then for the utilities we will say 25%x$2500 = $625 we multiply like this because the office uses 25% of all the apartment utilities .
thereafter the total home office expenses is the sum of both the rental office expense plus the the utilities other than telephone for the home office expense:
$625 + $2400 = $3025 then we get total home office expenses.
Problem 2-15 (Algo) Sailmaster makes high-performance sails for competitive windsurfers. Below is information about the inputs and outputs for one model, the Windy 2000. Units sold 1,216 Sale price each $ 1,700 Total labor hours 47,172 Wage rate $ 14 /hour Total materials $ 61,150 Total energy $ 4,005 Calculate the productivity in sales revenue/labor expense. (Round your answer to 2 decimal places.)
Answers
Answer:
The productivity in sales revenue/labor expense=3.13
Explanation:
Given Data:
Units sold=1,216 units
Price of each unit=$1,700
Total labor hours=47,172
wage rate=$14/hour
Total material=$61,150
Total energy=$4,005
Required:
The productivity in sales revenue/labor expense=?
Solution:
Formula;
The productivity in sales revenue/labor expense=
The productivity in sales revenue/labor expense=
The productivity in sales revenue/labor expense=3.13
In the aftermath of a hurricane, an entrepreneur buys generators at $530 each from a store in an area unaffected by the hurricane. He then sells them in the hardest-hit area for $900 apiece. What does the purchase of these generators by hurricane victims, at a 70% markup, say about the equilibrium price of generators following a natural disaster?
Answers
Answer:
A shift in the demand curve will create a new equilibrium point.
Those who voluntarily purchase the generators believe them to be worth the marked-up price.
The effect of price ceilings is to make behavior like the entrepreneur’s illegal.
Explanation:
The options to this question wasn't provided. Here are the options:
Any price ceiling imposed on generators in the affected area would create a surplus. O A shift in the demand curve will create a new equilibrium point. O Those who voluntarily purchase the generators believe them to be worth the marked-up price. O The effect of price ceilings is to make behavior like the entrepreneur’s illegal.
After the hurricane, the price of generators increased. This could mean that the demand for generators increased. If the demand for generators increased while supply remains unchanged, demand would outstrip supply and prices would rise.
This leads to the conclusion that there is a scarcity in the market and not a surplus.
A price ceiling is when the government or an agency of the government sets the maximum price for a good. If the government sets a price ceiling for generators, it would lead consumers to believe that the price of the generators is too high and that the seller is exploiting them. Thus, the sellers activities are illegal.
People who buy at the market price believe that the generator is worth the price. A rational consumer would only buy a good If his willingness to pay is greater or equal to the price of the product.
I hope my answer helps you
It is reasonable to state that one object has twice as much of the attribute property when it has a score of 60 and the other object has a score of 30 when measurement is on a(n) ____ scale.
Answers
Answer:
The correct answer is:
Ratio Scale
Explanation:
A ration scale of measurement is one that has equal units of measurement, and has an absolute value of zero. Measurements below the zero point on the scale is not possible. for example in the measurement of height in meters, the lowest measurement possible is 0 meter, a measurement of - 1 meter will make no mathematical sense. In this example, if a score of 60 is said to have twice as much attributes than a score of 30, it means that this attributes are measured from a reference zero point, because truly, 60 is twice as much as 30, from a zero point on a scale.
The other scales of measurements include;
nominal scale of measurement; which contains mainly categorical data and is mainly used in form of tags rather than showing magnitude or intervals. Example is grouping a group of adults into married, divorced or single.
Ordinal scale; this scale shows hierarchical series or ordered series, but does not show intervals between the elements. example is in classifying the positions of participants in a race as first, second or third etc. There is an ordering, as the first position is on top of the list, but it will now make sense to say the distance between the attribute of first to third position is the same as the distance between the attributes between third and fifth position, as there is no scale.
Interval scale; this scale of measurement does not have a limit zero value which represents the least possible point on a scale, but the intervals between different units on the scale can be compared logically. Example is the measurement of temperature using the Fahrenheit scale, where the temperature can go as low as - 20°F, below the zero point, and a distance of 3°F to 5°F can be said to be equal to a distance of 10°F to 12°F.
Carol is a recent high-school graduate with an excellent grade point average. After much thought, she decides to pursue a graduate degree in physics after she finishes her undergraduate degree and eventually become a professor. To attain this goal, she realizes that she must first study hard and do well in her undergraduate classes, then take the graduate entrance exam and apply to the best graduate programs in her field. Along the way, she wants to obtain an internship, as this will help her get into a quality graduate program. Which motivational mechanism of the goal-setting process does this scenario demonstrate?
Answers
Answer:
Hi, you haven't provided the options to the question so I will just give the answer in my own words and you can check with the options.
Answer is GOAL COMMITMENT.
Explanation:
Goal setting involves the development of an action plan designated to motivate and guide a person or group towards a goal.
It involves establishing specific, measurable, achievable, realistic and time-targeted (S.M.A.R.T) goals.
The different motivation mechanism of goal setting are: self-efficiency or efficacy, goal commitment, importance of goal outcome, commitment to others.
In this scenario, Carol already has a goal which is to become a professor and so she realizes that to attain this goal, there has to be a commitment ( to study hard and do well in her undergraduate classes, apply for a graduate program afterwards and also an internship).
Therefore, the motivational mechanism of goal setting process this scenario demonstrates is GOAL COMMITMENT.
You take out a loan for $100,000 at an annual interest rate of 5.9% that is to be paid with three equal annual payments of $37,341.79. How much principal will be paid in the second year?
Answers
Answer:
The principal repaid in the second year will be $33,296.
Explanation:
Out of each 37,341.79 payment a part of it will be principal repayment and a part of it will be interest payment. When the first 100,000 is paid (0.059*100,000)=5,900 is interest and (37,341-5,900)= 31,441 is principal repayment which means, that in the second year the principal remaining is (100,000-31,441)=68,559. So the interest payment in the second year will be (0.059*68,559)=4,045 and the principal repaid will be (37,341-4,045)=33,296.
Venzuela Company’s net income for 2020 is $50,000. The only potentially dilutive securities outstanding were 1,000 options issued during 2019, each exercisable for one share at $6. None has been exercised, and 10,000 shares of common were outstanding during 2020. The average market price of Venzuela’s stock during 2020 was $20.(a) Compute diluted earnings per share. (Round answer to 2 decimal places, e.g. $2.55.)
Answers
Answer:
Answer explained below
Explanation:
GIVEN:
options issued = 1000
exercise per share = $6
market price = $20
net income = $50000
a) Diluted earnings per share
= (Total income - preference dividends) /( outstanding shares + diluted shares)
Amount paid towards shares = Options issued * Exercise price per share = 1,000 * 6 = $ 6,000
Value of options = Amount paid towards shares / Current market price = $ 6,000 /$ 20 = 300
Diluted shares = Options issued - value of options = 1000 - 300 = 700
So Diluted Earnings per share = ( 50,000) / ( 10,000 +700) = $ 4.67 per share.
b) Calculation of diluted shares 700 (same as above )
Weighted average for the period holding i.e, 3 months = 700 *3/12 = 175 shares increased during the period.
Diluted EPS = 50,000 /(10,000 +175) = $ 4.91 per share
If current assets amount to $120,000, total assets are $600,000, current liabilities are $60,000, long term debt is $340,000 and total liabilities are $400,000, what is the current ratio?
Answers
Answer:
2
Explanation:
Current ration is a financial measure used to measure how many times a company's current assets can be used to meet its current obligation
Current ratio = current asset/current liabilities
Current assets = $120,000
Current liabilities = $400,000 - $340,000
= $60,000
Current ratio = $120,000/$60,000 = 2 times
At an interest rate of 7%, you can have approximately $18,000 twelve (12) years from now by depositing $___________ every year for the next twelve years assuming the deposits take place at the end of each year.
Answers
Answer:
The correct answer is $1,006.24.
Explanation:
According to the scenario, the given data are as follows:
Rate of interest (r) = 7%
Future value = $18,000
Time (t) = 12 years
So, We can calculate the payment to deposit by using following formula:
FV = Pmt ((( 1 + r)^t - 1) ÷ r )
$18,000 = Pmt ((( 1 + 0.07)^12 - 1) ÷ 0.07)
Pmt = $1,006.24
Hence, the amount that should be deposited every year is $1,006.24.
"Marshall Enterprises charged the following amounts of overhead to jobs during the year: $20,000 to jobs still in process, $60,000 to jobs completed but not sold, and $120,000 to jobs finished and sold. At year-end, Marshall Enterprise's Factory Overhead account has a credit balance of $5,000, which is not a material amount. What entry should Marshall make at year-end?"
Answers
Answer:
Given that,
Jobs still in process = $20,000
Jobs completed but not sold = $60,000
Jobs finished and sold = $120,000
Marshall Enterprise's Factory Overhead account has a credit balance of $5,000
Therefore, the journal entry is as follows:
Factory overhead A/c Dr. $5,000
To Cost of goods sold A/c $5,000
(To record the cost of goods sold)
FAQs
What is the equity method of IAS 28? ›
Under the equity method, on initial recognition the investment in an associate or a joint venture is recognised at cost, and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition.
What is the cost method of equity method? ›The cost method treats any dividends as income and can be taxed. On the hand, the equity method does not record dividends as income but rather as a return on investment and reduces the listed value of the investor's company shares. Accounting methods are typically used to record the value of the assets in a company.
How do you account for equity method investments? ›An equity method investment is recorded as a single amount in the asset section of the balance sheet of the investor. The investor also records its portion of the earnings/losses of the investee in a single amount on the income statement.
What is the equity method of goodwill? ›C – Equity method goodwill is calculated as the excess of Investor's purchase price paid to acquire the investment over the fair value amounts assigned to the identified tangible and intangible assets and liabilities (fair value of Investor's share of Investee's net assets).
What method is used for investments in equity securities with 20% to 50% ownership? ›Typically, equity accounting–also called the equity method–is applied when an investor or holding entity owns 20–50% of the voting stock of the associate company. The equity method of accounting is used only when an investor or investing company can exert a significant influence over the investee or owned company.
Which method is used in accounting for stock investments between 20% and 50%? ›In accounting for stock investments between 20% and 50%, the equity method is used. The equity method is used when there is a significant amount of control and influence held by the purchasing company over the issuing company. The investment of 20% to 50% is considered to be significant.
What are 3 methods used to calculate the cost of equity capital? ›There are three formulas for calculating the cost of equity: capital asset pricing model (CAPM), dividend capitalization, and weighted average cost of equity (WACE).
What is an example of the equity method? ›The investor records their share of the investee's earnings as revenue from investment on the income statement. For example, if a firm owns 25% of a company with a $1 million net income, the firm reports earnings from its investment of $250,000 under the equity method.
What is the formula for cost of equity quizlet? ›rE or cost of equity = [Div1/price initial] + g. this is done in many ways. 1) use CAPM: estimate beta, estimate risk free, estimate risk premium, this is the cost of equity.
How do you use the equity method? ›Under the equity method, the investor begins as a baseline with the cost of its original investment in the investee, and then in subsequent periods recognizes its share of the profits or losses of the investee, both as adjustments to its original investment as noted on its balance sheet, and also in the investor's ...
What is the formula for equity? ›
What is equity and its formula? Equity is the residual value of a company after all its assets are liquidated and all liabilities to its creditors paid. The formula for equity is: Total Equity = Total Assets - Total Liabilities.
What is the difference between equity method and acquisition method? ›The main difference is that the equity method is used when ownership is between 20% and 50%. As soon as the company has 50% ownership or more, the investment needs to be accounted for under the acquisition (aka consolidation) method since the company has majority ownership.
What are the three methods of goodwill? ›- Average Profit Method. Goodwill's value in this method is considered by multiplying the Average Future profit by a certain number of year's purchase. ...
- Super Profit Method: ...
- Capitalization Method: ...
- Annuity Method:
- Average Profits Method. i] Simple Average: Under this method, the goodwill is valued at the agreed number of years' of purchase of the average profits of the past years. ...
- Super Profits Method. ...
- Capitalization Method.
It can be calculated by using the formula. Goodwill = Average Profit x No. of years' of purchase.
Which equity method is used when the investor owns less than 20% of the investee? ›The cost method of accounting is used when an investor owns less than 20% of the investee, holding a minority interest. In this case, investments are recorded as an asset using their historical cost.
Which equity method is used when the investor holds less than 20% interest or insignificant influence? ›If less than 20% of the stock is acquired and no significant influence or control exists, the investment is accounted for using the cost method. If 20–50% of the stock is owned, the investor is usually able to significantly influence the company it has invested in.
What is investment method or equity method? ›The equity method is a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the investor's share of the investee's net assets.
Which method of accounting will generally be used when one company purchases less than 20% of the outstanding stock of another company? ›A purchasing company that owns less than 20% of the outstanding stock of the investee company, and does not exercise significant influence over it, uses the cost method.
What is the 3 stock method? ›A 3 fund portfolio is a diversification approach whereby the investors put their money in a certain ratio in three different asset classes, i.e., domestic stocks, domestic bonds, and international stocks. It is a simple, low-cost investing approach that ensures retirement savings at a minimal risk appetite.
How do you account for investment less than 20%? ›
Reporting Fair Value. Stock investments of 20% or less are recorded at cost (considered its fair value) and reported as an asset on the balance sheet.
What is a high cost of equity? ›The higher the volatility, the higher the beta and relative risk compared to the general market. The market rate of return is the average market rate. In general, a company with a high beta—that is, a company with a high degree of risk—will have a higher cost of equity.
What is the equity dividend rate? ›The Equity Dividend Rate (also called the Equity Capitalization Rate and Cash on Cash Return) is the ratio of a single year's Before Tax Cash Flow and the Equity Investment in the property. Equity Dividend Rate = Equity Investment ÷ Before Tax Cash Flow.
What is the average cost of equity? ›The weighted average cost of equity (WACE) measures the cost of equity proportionally for a company rather than simply averaging the overall figures. With the weighted average cost of equity, the cost of a particular equity type is multiplied by the percentage of the capital structure it represents.
What are four types of equity? ›Four Common Types of Equity Compensation
The types of equity compensation you're most likely to encounter fall into four categories: incentive stock options (ISOs), non-qualified stock options (NSOs), restricted stock or restricted stock units (RSUs) and employee stock purchase plans (ESPPs).
- Stockholders' equity. ...
- Owner's equity. ...
- Common stock. ...
- Preferred stock. ...
- Additional paid-in capital. ...
- Treasury stock. ...
- Retained earnings.
There are two ways to calculate cost of equity: using the dividend capitalization model or the capital asset pricing model (CAPM). Neither method is completely accurate because the return on investment is a calculation based on predictions about the stock market, but they can both help you make educated investments.
What is cost of equity calculator? ›The cost of equity calculator is a tool that calculates the cost of equity - the rate of return a company theoretically pays to its equity investors to compensate them for the risk they undertake by investing their capital into the company.
Which of the following is the correct formula for the cost of equity? ›For the cost of equity for WACC calculation, one must use the formula: Cost of equity = Risk-free rate of return + Beta * (market rate of return – a risk-free rate of return).
What is the equity cost of capital quizlet? ›The cost of equity is the return required by equity investors given the risk of the cash flows from the firm. 2. Risk that comes from the capital structure of the firm.
Why do we use equity method? ›
Purposes of the equity method of accounting for investments
The purpose of equity accounting is to ensure that the investor's accounts accurately reflect the investee's profit and loss. A recognized profit increases the investment's worth, while a recognized loss decreases its value accordingly.
The equity method is used to account for investments in common stock or other eligible investments by recognizing the investor's share of the economic resources underlying those investments.
How much is 20% equity? ›This means that from the start of your purchase, you have 20 percent equity in the home's value. The formula to see equity is your home's worth ($200,000) minus your down payment (20 percent of $200,000 which is $40,000). You only own $40,000 of your home.
What are four types of acquisition methods are used? ›There are four main types of acquisitions based on the relationship between the buyer and seller: horizontal, vertical, conglomerate, and congeneric.
What is an example of acquisition method? ›Example 1: Acquisition / Purchase of Assets
A company purchases the capital assets of another one for $200 million. It will have to record those assets on its balance sheet. This means that the acquiring company will have to record everything that the other company owns.
The cost method records the investment as an asset and records dividends as income to the investor. The equity method records the investment as an asset, more specifically as an investment in associates or affiliates, and the investor accrues their proportionate share of the investee's income.
Which goodwill method is best? ›Goodwill valuation is the systematic evaluation of the company's goodwill to be shown in the company's balance under the head intangible assets. Top methods to value include the Average Profits Method, Capitalization Method, weighted average profit method, and the Super Profits Method.
What is the goodwill super profit method? ›Super profit is the excess of estimated future profit than the normal profit. It is a way of determining the extra profits that are earned by the business. The goodwill is determined by multiplying the value of super profits by a certain number (that number being the number of years of purchase).
What is the normal profit method of goodwill? ›Average Profit method is one of the simplest methods of goodwill valuation that is used commonly. In this method, the value of goodwill is calculated by multiplying the average estimated profit or average future profit with the number of years of purchase.
What are the different types of goodwill? ›There are two distinct types of goodwill: purchased, and inherent.
What is the formula for goodwill cost? ›
Apply the goodwill formula: goodwill = purchase price - (market value of assets - market value of liabilities)
Why is goodwill calculated? ›The need for determining goodwill often arises when one company buys another firm. Goodwill is calculated as the difference between the amount of consideration transferred from acquirer to acquiree and net identifiable assets acquired.
What is the formula of goodwill ratio? ›The goodwill to assets ratio is calculated by dividing goodwill, which is usually found in the no-current assets section of a company's balance sheet, by total assets.
What is equity accounting under IAS 28? ›Key definitions [IAS 28.2]
Equity method: a method of accounting by which an equity investment is initially recorded at cost and subsequently adjusted to reflect the investor's share of the net assets of the associate (investee).
The equity method is used to account for investments in common stock or other eligible investments by recognizing the investor's share of the economic resources underlying those investments.
What is equity according to IAS? ›Equity instrument: Any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Fair value: the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction.
What is the equity method of consolidation? ›The Equity Method
If a company holds more than 20% of another company's stock, the company has significant control where it can exert influence over the other company. The initial investment is recorded at cost and each quarter adjustments are made depending on the value at the end of the period.
AS – 28 deals with the impairment of assets i.e the carrying amount of the assets should not be more than the recoverable amount of the assets. This calculation has to be done at the end of each financial year.
Why use the equity method of accounting? ›Other financial activities that affect the value of the investee's net assets should have the same impact on the value of the investor's share of investment. The equity method ensures proper reporting on the business situations for the investor and the investee, given the substantive economic relationship they have.
What is IAS 30 disclosure in the financial statements of banks and similar financial institutions? ›Summary of IAS 30
The intention is to provide users with appropriate information to assist them in evaluating the financial position and performance of banks, and to enable them to obtain a better understanding of the special characteristics of the operations of banks.
What is equity method under US GAAP? ›
The equity method is an appropriate means of recognizing increases or decreases measured by generally accepted accounting principles (GAAP) in the economic resources underlying the investments.
When the equity method of accounting for investments is used by quizlet? ›If the investor has significant influence but not control over the investee, the equity method is used.
What is IAS 32 settlement in own equity? ›Key definitions [IAS 32.11]
a contract that will or may be settled in the entity's own equity instruments and is: a non-derivative for which the entity is or may be obliged to receive a variable number of the entity's own equity instruments.
The major difference between IAS and IFRS is that IAS is the earlier version of the accounting standards, while IFRS is a more up-to-date and widely used version worldwide. IFRS provides more detailed requirements for financial reporting and covers a broader range of accounting issues than IAS.