Company Y:Asset Acquisition Strategy: Purchased assets in recent years at higher prices.Historical Cost Accounting: Records assets at historical cost.Debt Levels: Identical to Company X.Return on Assets Ratio: Identical to Company X.Question: The return on assets ratio is most likely:A. overstated for Company Y.B. overstated for both companies.C. overstated for Company X.D. accurate for both companies. Background: Two companies, X and Y, share identical return on assets ratios. However, theirasset acquisition strategies and the timing of purchases differ significantly. Company Xacquired most of its assets many years ago when prices were relatively low, while Company Ymade its acquisitions in recent years when prices were comparatively high. Both companiesmaintain identical debt levels and record their assets at historical cost.Company X:Asset Acquisition Strategy: Purchased assets many years ago at lower prices.Historical Cost Accounting: Records assets at historical cost.Debt Levels: Identical to Company Y.Return on Assets Ratio: Identical to Company Y.

Lets understand the basics.Return on asset ratio indicates that how much net income is generated…

Return on Assets Ratio: Identical to Company X. Question: The return on assets ratio is most likely: A. overstated for Company Y. B. overstated for both companies. C. overstated for Company X. D. accurate for both companies.

Return on Assets Ratio: Identical to Company X. Question: The return on assets ratio is most likely: A. overstated for Company Y. B. overstated for both companies. C. overstated for Company X. D. accurate for both companies.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Company Y:
Asset Acquisition Strategy: Purchased assets in recent years at higher prices.
Historical Cost Accounting: Records assets at historical cost.
Debt Levels: Identical to Company X.
Return on Assets Ratio: Identical to Company X.
Question: The return on assets ratio is most likely:
A. overstated for Company Y.
B. overstated for both companies.
C. overstated for Company X.
D. accurate for both companies.

Background: Two companies, X and Y, share identical return on assets ratios. However, their
asset acquisition strategies and the timing of purchases differ significantly. Company X
acquired most of its assets many years ago when prices were relatively low, while Company Y
made its acquisitions in recent years when prices were comparatively high. Both companies
maintain identical debt levels and record their assets at historical cost.
Company X:
Asset Acquisition Strategy: Purchased assets many years ago at lower prices.
Historical Cost Accounting: Records assets at historical cost.
Debt Levels: Identical to Company Y.
Return on Assets Ratio: Identical to Company Y.

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