The city of Morgantown gave a piece of land to Acme, Inc so that the company would build its new factory in Morgantown and create many local jobs
One appraiser said the land was worth $500,000, while a second appraiser said the land was worth $520,000.
1. What effect will it have on Acme's earnings per share if it records the land at $500,000 rather than $520,000?
(circle one) increase decrease no effect
2. What effect will it have on Acme's total assets if it records the land at $500,000 rather than $520,000?
(circle one) increase decrease no effect
3. Name one ratio that will be affected by Acme's choice of value for the land. Will this ratio be higher or lower if Acme records the land at $500,000 rather than $520,000?
4. Explain the relationship between management's choice of recorded value for the land and the company's quality of earnings.
What will be an ideal response?
1. No effect, because land is not depreciated.
2. Total assets will be decreased.
3. (a) return on assets; higher or (b) asset turnover ratio; higher
4. Choosing a more conservative accounting method leads to reporting lower total assets. Conservative choices make it less likely that total assets (and net income) are overstated.
You might also like to view...
To enhance the presentation through the use of visuals,
A) use design principles that focus on attractive artwork. B) create slideuments. C) limit the use of free-form slides. D) use bullet points whenever possible. E) make sure the message, not the visual, is the focus of the presentation.
Which of the following types of marketing intermediaries assumes the selling responsibility for a business and receives a commission when a sale occurs, as part of a direct channel system?
A) retailers B) brokers C) wholesalers D) commercial distributors E) dealers