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larisa [96]
3 years ago
10

Without an adjusting entry for accrued interest expense, liabilities and interest expense are understated, and net income and st

ockholders' equity are overstated. True or false?
Business
1 answer:
Mrrafil [7]3 years ago
7 0

Answer:

True

Explanation:

An adjusting entry for accrued interest expense will be recorded as follows in the books of the owing entity.

Debit Interest expenses account - <em>(this will increase expenses)</em>

Credit Interest payable (liability) account - <em>(this will increase liability)</em>

Therefore, without the above adjusting entry

  • Liabilities will be understated, since the adjusting entry would have increased liability
  • Interest expenses will be understated, since the adjusting entry would have increased interest expenses
  • Net Income will be overstated, since a higher interest expense by the adjusting entry would have reduced net income
  • Stockholders' equity will be overstated, since a higher interest expense by the adjusting entry would have reduced net income which would in turn reduce stockholders' equity.
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2 years ago
The town of Sanford, Maine, decided to auction off a plot of land owned by the town. The town advertised that it would accept bi
rodikova [14]

Answer:

The answer is: Both parties could win, depending if there were other conditions established for the auction.

Explanation:

Usually when an auction is carried out there are conditions established beforehand by the auctioneer that must be fulfilled in order for the sale to be completed.

In this case, since we don´t know what other conditions the town of Sanford included in the auction, if any other condition at all, we can´t conclude which party could win the lawsuit. For instance if a reserve was required but Arthur and Arlene didn´t do the reserve deposit, then they will obviously lose. The same happens with other established conditions like a minimum price set, etc. But if no other condition established, then Arthur and Arlene could win.

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3 years ago
Coca-cola provides a children's center with props, costumes, and decorations for use in a community play. this type of activity
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Standard, Inc. reported EBIT of $35 million for last year. Depreciation expense totaled $20 million and capital expenditures cam
aleksandr82 [10.1K]

Answer:

$710.84 million

Explanation:

Net income = $35 million

Depreciation = $20 million

Capital expenditures = $7 million

Tax rate = 21%

D/E ratio = 0.4

Growth rate = 6%

Equity beta = 1.25

So, firm's asset beta = Equity beta/(1 + D/E*(1-T))

= 1.25/(1 + 0.4*(1-0.21))

= 0.94985

So, Free Cash Flow to the Firm= NI + Depreciation - Capital expenditures

= 35 + 20 - 7

= $48 million

Risk free rate Rf = 5%

Market risk premium = 7.5%

So, firm cost of capital using CAPM is Rf + Beta*(MRP)

Kc = 5 + 0.94985*7.5

Kc = 12.1239

So, Firms value using constant dividend growth model:

FV = FCF*(1+g)/(Kc-g)

FV = 48*1.06 / 0.121239-0.06

FV = 50.88 / 0.061239

FV = 830.8430901876255

FV = $830.84 million

Debt = $120 million

Market Value of equity = FV - Debt

Market Value of equity = $830.84 million - $120 million

Market Value of equity = $710.84 million

6 0
2 years ago
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