7. (a) When should a long-term investment in common stock be accounted for by the equity method? (b) When is revenue recognized under the equity method?
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- What is the default classification for an equity investment? A Fair value through profit or loss B Fair value through other comprehensive income C Amortised cost D Net proceedschoose the correct answer: Equity security acquired for trading should be measured at reporting date a. cost, being the purchase price b. cost, being the purchase price plus transaction costs c. fair value, with change in FV taken through profit or loss. d. fair value, with change in FV taken through other comprehensive income.Define cost of equity? How does it relate to the ‘required rate of return’ (r) on equities?
- Does the accounting (book) rate of return (ARR) method provide a valid (or, meaningful) measureof the return on investment? How about the investment’s internal rate of return (IRR)?Which of the following may take the form of dividend income and/or capital appreciation? a. bond investments b.gain from an investment c.equity investments d.expected rate of returnWhat have been the possible reasons for the changes in Return of Equity (ROEs )? •Decompose the ROE into the main components: ROA and EM (Equity Multiplier) •Analyse the sources of Return of Asset (ROA) : Asset Utilisation (AU) and Profit Margin ratios.(PM) •Identify the sources of the changes in Asset Utilisation and Profit Margin
- Which of the following is an idicator of financial risk ? a) Net Sales / Total Assets b) Total Liabilities / Equity c) Return on Assets d) Return on EquityThe calculation for the cost of equity using the interpolation method should be provided in the solution.In general terms, what is the Capital AssetPricing Model (CAPM)? What assumptions weremade when it was derived?
- How much is the net adjustment to Jungkook, Capital as a result of the foregoing?Which of the following is an appropriate computation for return on investment? a. Sales divided by total assets b. Net income divided by total assets c. Net income divided by sales d. Sales divided by stockholders' equity would b be the right answer?A primary strength of the net present value method for analyzing investments is that it accounts for the amount and timing of earnings for that investment. A. True B. False
