Codification Research Case Paper

* She is considering the cash flow paid to all the equity or debt holders. So she cannot use the equity cost of capital.

The purpose is that the cost capital will be used for capital budgeting, financial accounting, performance assessment, stock repurchases estimations. Also the cost of capital is a necessary basis for the expected growth and forecasted demand.

Investments. “The analysis and process of choosing securities and other assets to purchase.” (Cornett, Adair, & Nofsinger, 2016, p. 7).

As an amusement park operator, it is clear to assume that WAL’s intention of acquiring the wound-up company’s assets was to move and operate them at the new location. Therefore, transportation cost ($350,000) and the other costs to get them up and running ($400,000 and $500,000) should be capitalized as part of acquired asset ($4.25 million). By the lower of cost or market valuation system rule, $4.25 million will be recorded for the purchase price. In addition, 0.60 million valuation difference needs to be accounted for using appropriate ASPE recommendations. This capitalization approach will lead to the same effects as the above two approaches toward stakeholders.

Assets are things that a company owns that have value. This typically means they can either be sold or used by the company to make products or provide services that can be sold. Assets include physical property, such as plants, trucks, equipment and inventory. It also includes things that can’t be touched but nevertheless exist and have value, such as

835-20-30-2   The amount of interest cost to be capitalized for qualifying assets is intended to be that portion of the interest cost incurred during the assets ' acquisition periods

eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount

According to Section 360-10-15-4, the scope of the standard applies to transactions and activities related to recognized long-lived assets of an entity to be held and used, including capital leases of lessees, long-lived assets of lessors subject to operating leases, proved oil and gas properties that are being accounted for using the successful-efforts method of accounting, and long-term prepaid assets.

Overall. The FASB Codification Topic 320: Investments-Debt and Equity Securities is included under the financial statement asset section and offers guidance on investment instruments that represent either a creditor relationship (debt) or an ownership interest (equity) and provides standards for reporting such investments according to generally accepted accounting principles (GAAP) (FASB ASC 320-10-05-2, 2016).

• Cost of capital must reflect current capital market conditions (current required returns) • Cost of capital must also reflect the optimal relative proportions of debt and equity the firm will

“The total equity investment (equity investments in a legal entity are interests that are required to be reported as equity in that entity’s financial statements) at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders.”

Credit ratio requirement: The company covenants that it will not permit current assets at any time to be less than, for example, 150 percent of current liabilities.

* We assume the cost of capital to be a stated annual rate to facilitate calculations;

3) What is the weighted average cost of capital and why is it important to estimate it? Is the

All entities that hold financial assets or commitments to extend credit that are not accounted for at fair value through profit or loss