A company should use the equity method to account for an investment ifO it has the ability to exercise significant influence over the operating policies of the investee.O it owns 30% of another company's stock..O it has a controlling interest (more than 50%) of another company's stock.O the investment was made primarily to earn a return on excess cash.

Significant influence means where entity's (the investor's) capacity to exercise a significant…

Answered: company should use the equity method to…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter12: Balanced Scorecard And Other Performance Measures

Section: Chapter Questions

Problem 12MC: The cost of equity is _______. A. the interest associated with debt B. the rate of return required...

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The cost of equity is _______. A. the interest associated with debt B. the rate of return required by investors to incentivize them to invest in a company C. the weighted average cost of capital D. equal to the amount of asset turnover
Owners equity represents which of the following? A. the amount of funding the company has from issuing bonds B. the sum of the retained earnings and accounts receivable account balances C. the total of retained earnings plus paid-in capital D. the business owners/owners share of the company, also known as net worth or net assets
The total amount of cash and other assets received by a corporation from the stockholders in exchange for the shares is ________. A. always equal to par value B. referred to as retained earnings C. always below its stated value D. referred to as paid-in capital
You are a consultant working with various companies that are considering incorporating and listing shares on a stock exchange. One of your clients asks you about the various acronyms she has been hearing in conjunction with financial analysis. Explain the following acronyms and how they measure different things but may complement each other: EPS (earnings per share), EBITDA (earnings before interest, taxes, depreciation, and amortization), and NOPAT (net operating profit after taxes).
d. (1) What are the two primary ways companies raise common equity? (2) Why is there a cost associated with reinvested earnings? (3) Jana doesnt plan to issue new shares of common stock. Using the CAPM approach, what is Janas estimated cost of equity?
When analysing a company, the equity sales person has noticed that the company has incurred a large development cost relating to a new product and has stated that the costs meet the necessary criterion to be capitalised. The analyst feels a more reasonable treatment of this item would be to expense it, in the year incurred. The company has a tax rate of 30%. The company acquires 100% of shares in another company called Horizon for cash of £4.8 million. Net assets Horizon are £3.3m.There is an upward fair value adjustment of £0.4 m required to the acquirees’ net assets. The acquired company has a 0.2, in process development costs that have not been previously recognised but now meet the necessary capitalisation criteria. Explain how a company could acquire intangible assets. With regard to the development costs, what will be the implication for the financial statements of the two different approaches? Include any relevant ratios.
Boehn Corporation accounts for its investment in the common stock of Sells Company under the equity method, since they exert significant influence. Boehn Corporation should ordinarily record a cash dividend received from Sells as a. a reduction of the carrying value of the investment. b. additional paid-in capital. c. an addition to the carrying value of the investment. d. dividend income.
When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies? The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee. The investor should always use the equity method to account for its investment. The investor should always use the fair value method to account for its investment.
1. The cost method of accounting for stock investments is used when the company acquires a. Greater than 50% of the company's stock b. Between 20% to 50% of the company's stock c. Less than 20% of the company's stock 2. The significance of percentage of ownership relates to how much _____________ the acquiring company has in the new company. a. data b. control c. confidence
Indicate whether the following statements are true or false. If the statement is false, explainwhy.a. If a firm repurchases its stock in the open market, the shareholders who tender thestock are subject to capital gains taxes.b. If you own 100 shares in a company’s stock and the company’s stock splits two-forone,you will own 200 shares in the company following the split.c. Some dividend reinvestment plans increase the amount of equity capital available tothe firm.d. The Tax Code encourages companies to pay a large percentage of their net income inthe form of dividends.e. If your company has established a clientele of investors who prefer large dividends,the company is unlikely to adopt a residual dividend policy.f. If a firm follows a residual dividend policy, holding all else constant, its dividendpayout will tend to rise whenever the firm’s investment opportunities improve.
The cost of equity is ________. Group of answer choices A. the interest associated with debt B. the rate of return required by investors to incentivize them to invest in a company C. the weighted average cost of capital D. equal to the amount of asset turnover
True or False: The following statement accurately describes how firms make decisions related to issuing new common stock. The cost of issuing new common stock is calculated the same way as the cost of raising equity capital from retained earnings. True: The cost of retained earnings and the cost of new common stock are calculated in the same manner, except that the cost of retained earnings is based on the firm’s existing common equity, while the cost of new common stock is based on the value of the firm’s share price net of its flotation cost. False: Flotation costs need to be taken into account when calculating the cost of issuing new common stock, but they do not need to be taken into account when raising capital from retained earnings. Alpha Moose Transporters is considering investing in a one-year project that requires an initial investment of $475,000. To do so, it will have to issue new common stock and will incur a flotation cost of 2.00%. At the…

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