To critically think about: The occurrence of negative shareholders’ equity with market values. Introduction: Market value refers to the value that the asset will fetch if it is sold in the open market. The firm records its assets at historical cost instead of the market value. Historical costs are lesser than the market value. Hence, the value of liabilities sometimes exceeds the value of assets resulting in negative shareholders’ equity. However, there will be no negative shareholders equity when the market values are used.

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Answer 1

Question

Chapter 2, Problem 5CQ

Summary Introduction

To critically think about: The occurrence of negative shareholders’ equity with market values.

Introduction:

Market value refers to the value that the asset will fetch if it is sold in the open market. The firm records its assets at historical cost instead of the market value. Historical costs are lesser than the market value. Hence, the value of liabilities sometimes exceeds the value of assets resulting in negative shareholders’ equity. However, there will be no negative shareholders equity when the market values are used.

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Answer 2

Question

Chapter 2, Problem 5CQ

Summary Introduction

To critically think about: The occurrence of negative shareholders’ equity with market values.

Introduction:

Market value refers to the value that the asset will fetch if it is sold in the open market. The firm records its assets at historical cost instead of the market value. Historical costs are lesser than the market value. Hence, the value of liabilities sometimes exceeds the value of assets resulting in negative shareholders’ equity. However, there will be no negative shareholders equity when the market values are used.

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Answer 3

Question

Chapter 2, Problem 5CQ

Summary Introduction

To critically think about: The occurrence of negative shareholders’ equity with market values.

Introduction:

Market value refers to the value that the asset will fetch if it is sold in the open market. The firm records its assets at historical cost instead of the market value. Historical costs are lesser than the market value. Hence, the value of liabilities sometimes exceeds the value of assets resulting in negative shareholders’ equity. However, there will be no negative shareholders equity when the market values are used.

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Answer 4

Question

Chapter 2, Problem 5CQ

Summary Introduction

To critically think about: The occurrence of negative shareholders’ equity with market values.

Introduction:

Market value refers to the value that the asset will fetch if it is sold in the open market. The firm records its assets at historical cost instead of the market value. Historical costs are lesser than the market value. Hence, the value of liabilities sometimes exceeds the value of assets resulting in negative shareholders’ equity. However, there will be no negative shareholders equity when the market values are used.

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Answer 5

Chapter 2, Problem 5CQ

Summary Introduction

To critically think about: The occurrence of negative shareholders’ equity with market values.

Introduction:

Market value refers to the value that the asset will fetch if it is sold in the open market. The firm records its assets at historical cost instead of the market value. Historical costs are lesser than the market value. Hence, the value of liabilities sometimes exceeds the value of assets resulting in negative shareholders’ equity. However, there will be no negative shareholders equity when the market values are used.

Answer 6

Chapter 2, Problem 5CQ

Summary Introduction

To critically think about: The occurrence of negative shareholders’ equity with market values.

Introduction:

Market value refers to the value that the asset will fetch if it is sold in the open market. The firm records its assets at historical cost instead of the market value. Historical costs are lesser than the market value. Hence, the value of liabilities sometimes exceeds the value of assets resulting in negative shareholders’ equity. However, there will be no negative shareholders equity when the market values are used.

Answer 7

Chapter 2, Problem 5CQ

Summary Introduction

To critically think about: The occurrence of negative shareholders’ equity with market values.

Introduction:

Market value refers to the value that the asset will fetch if it is sold in the open market. The firm records its assets at historical cost instead of the market value. Historical costs are lesser than the market value. Hence, the value of liabilities sometimes exceeds the value of assets resulting in negative shareholders’ equity. However, there will be no negative shareholders equity when the market values are used.

Answer 8

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Answer 9

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Answer 10

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Answer 11

Ch. 2 - Prob. 1CQ Ch. 2 - Prob. 2CQ Ch. 2 - Prob. 3CQ Ch. 2 - Prob. 4CQ Ch. 2 - Prob. 5CQ Ch. 2 - Cash Flow from Assets Why is it not necessarily...Ch. 2 - Operating Cash flow Why is it not necessarily bad...Ch. 2 - Net Working Capital and Capital Spending Could a...Ch. 2 - Cash Flow to Stockholders and Creditors Could a...Ch. 2 - Prob. 10CQ

Solution Summary: The author explains that the firm records its assets at historical cost instead of the market value, resulting in negative shareholders' equity. The bankruptcy laws state that an individual's net worth will always be positive.

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Chapter 2 Solutions