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 lower 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 5CRCT

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 lower 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 5CRCT

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 lower 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 5CRCT

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 lower 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 5CRCT

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 lower 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 5CRCT

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 lower 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 5CRCT

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 lower 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 5CRCT

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 lower 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 10

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Answer 11

Ch. 2.1 - Prob. 2.1ACQ Ch. 2.1 - Prob. 2.1BCQ Ch. 2.1 - What do we mean by financial leverage?Ch. 2.1 - Explain the difference between accounting value...Ch. 2.2 - What is the income statement equation?Ch. 2.2 - What are the three things to keep in mind when...Ch. 2.2 - Why is accounting income not the same as cash...Ch. 2.3 - What is the difference between a marginal and an...Ch. 2.3 - Do the wealthiest corporations receive a tax break...Ch. 2.4 - Prob. 2.4ACQ

Solution Summary: The author explains that if a company uses market values instead of historical costs, the shareholders' equity can never be negative. The bankruptcy laws state that an individual's net worth will always be positive.

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