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3 years ago

Why is the cost of goods sold account part of a trading business only?

Business

1 answer:

Lisa [10]3 years ago

5 0

Answer:

Yes costs of goods sold is peculiar to those businesses dealing in tangible items

Explanation:

For a service company there is no costs of goods sold because no goods were purchased for resale.The major costs found in the cost structure of a service outfit is manpower costs,since people with requisite knowledge form the main reason for business existence

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If management wants to maximize its stock price, and if it believes that the dividend irrelevance theory is correct, then it mus

kupik [55]

Answer:

The correct answer is False.

Explanation:

This statement is false, since the residual theory of dividends argues that these are irrelevant, that is, that the value of the company is not affected by its dividend policy. The main drivers of this theory are Modigliani and Miller. Both authors affirm that the value of the company is determined solely by the profitability and the degree of risk of its assets (investments), and that the way in which the organization divides its income between dividends and reinvestment does not have a direct effect on its value .

However, some studies show that significant changes in dividends affect the price of shares in the same direction, that is, increases in dividends translate into increases in stock prices, and vice versa. In response, M and M propose that the positive effects of dividend increases be attributed, not to the dividend itself, but to the informational content of dividends with respect to future income. Thus, any increase in dividends would cause investors to raise the price of the shares, while a decrease would cause a corresponding decrease in the price of the shares.

7 0

3 years ago

Consider a firm with an EBIT of $500,000. The firm finances its assets with $2,000,000 debt (costing 6 percent) and 50,000 share

Schach [20]

Answer:

EPS is reduced by $1.92 and 42%

Explanation:

EBIT $500,000

Interest Expense ($120,000) ($2,000,000 x 6%)

EBT $380,000

Tax 40% ($152,000)

Net Earninig $228,000

Outstanding stock = 50,000

EPS = $228,000 / 50,000 = $4.56 per share

Change in Capital Structure.

EBIT $500,000

Interest Expense ($60,000) ($1,000,000 x 6%)

EBT $440,000

Tax 40% ($176,000)

Net Earninig $264,000

Outstanding stock = 50,000 + 50,000 = 100,000

EPS = $264,000 / 100,000 = $2.64 per share

Change in EPS = $4.56 - $2.64 = $1.92 per share

Change in EPS = $1.92 / $4.56 = 0.42 = 42%

5 0

3 years ago

Forchen, Inc., provided the following information for two of its divisions for last year:

Ede4ka [16]

Answer:

Forchen, Inc.

a. Residual income for the Small Appliances Division:

$2,218,880

b. Residual income for the Cleaning Products Division:

$788,800

Explanation:

a) Data and Calculations:

Small Appliances Cleaning Products

Division Division

Sales $34,670,000 $31,320,000

Operating income 2,773,600 1,252,800

Operating assets, January 1 6,394,000 5,600,000

Operating assets, December 31 7,474,000 6,000,000

Average operating assets 6,934,000 5,800,000

Rate of return (8%) 554,720 464,000

Residual income 2,218,880 788,800

b) The rate of return of 8% is computed on the average operating assets. The residual income is the difference between the operating income and the minimum rate of return.

3 0

3 years ago

Which federal legislation gives consumers the right to know what is in their credit report?

Alinara [238K]

Answer:

b. the fair credit reporting act

Explanation:

"The Fair Credit Reporting Act (FCRA) is a federal law that helps to ensure the accuracy, fairness and privacy of the information in consumer credit bureau files. The law regulates the way credit reporting agencies can collect, access, use and share the data they collect in your consumer reports."

Exert from: https://www.experian.com/blogs/ask-experian/credit-education/report-basics/fair-credit-reporting-act-fcra/#:~:text=The%20Fair%20Credit%20Reporting%20Act%20(FCRA)%20is%20a%20federal%20law,collect%20in%20your%20consumer%20reports.

3 0

3 years ago

The concept of leverage is that a.a high debt-to-equity ratio is favorable. b.it is appropriate to borrow if the return on the a

Travka [436]

Answer:

b. it is appropriate to borrow if the return on the assets is greater than the cost of the financing.

Explanation:

A leverage can be defined as a process which typically involves the use of fixed-charged assets or items in a business with the intention of multiplying potential financial gains and returns.

In Financial accounting, the concept of leverage is that it is appropriate for a business firm to borrow an amount of money (debt), if the return on the assets (capital gain or income) is greater than the cost of the financing (debt or borrowed money).

Basically, financial leverage which is also known as trading on equity, is the utilization of debt (borrowed money) to acquire or purchase new assets with the intent and expectation that the income generated from these assets would exceed the cost incurred from borrowing. Thus, a business that engages in financial leveraging assumes that it would generate a higher income or capital gain from the amount of debt (borrowed money) used in its capital structure.

7 0

3 years ago