If the firm is being operated so as to maximize shareholder wealth, and if our basic assumptions concerning the relationship between risk and return are true, then which of the following should be true??
A. ?If the beta of the asset is larger than the firm's beta, then the required return on the asset is less than the required return on the firm.
B. ?If the beta of the asset is smaller than the firm's beta, then the required return on the asset is greater than the required return on the firm.
C. If the beta of the asset is greater than the corporate beta prior to the addition of that asset, then the corporate beta after the purchase of the asset will be smaller than the original corporate beta.?
D. ?If the beta of an asset is larger than the corporate beta prior to the addition of that asset, then the required return on the firm will be greater after the purchase of that asset than prior to its purchase.
E. ?If the beta of an asset is larger than the firm's beta, then the required rate of return is equal to the beta.
Answer: D
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Parrett Corp. acquired one hundred percent of Jones Inc. on January 1, 2016, at a price in excess of the subsidiary's fair value. On that date, Parrett's equipment (ten-year life) had a book value of $360,000 but a fair value of $480,000. Jones had equipment (ten-year life) with a book value of $240,000 and a fair value of $350,000. Parrett used the partial equity method to record its investment in Jones. On December 31, 2018, Parrett had equipment with a book value of $250,000 and a fair value of $400,000. Jones had equipment with a book value of $170,000 and a fair value of $320,000. What is the consolidated balance for the Equipment account as of December 31, 2018?
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Rotary Tools sells power tools and backs each product it sells with a one-year warranty against defects. Based on previous experience, the company expects warranty costs to be approximately 5% of sales. By the end of the first year, sales are $800,000. Actual warranty expenses incurred so far are $13,000.1. Does this situation represent a contingent liability? Why or why not?2. Record warranty expense and warranty liability for the year based on 5% of sales.3. Record the actual warranty expenditures of $13,000 incurred so far.4. What is the balance in the Warranty Liability account after the entries in parts 2 and 3?
What will be an ideal response?