With the background ideas of using the cheapest source first and the impact of asymmetric information, what does the Pecking Order Hypothesis predict?
What will be an ideal response?
Answer: The Pecking Order Hypothesis predicts:
(1) Firms prefer internal financing first.
(2) If external financing is required, firms will choose to issue the safest or cheapest security first, starting with debt financing and using equity as a last resort.
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Central Investments bought 4,000 shares of Benet Company common stock on January 1, 2018, for $20,000, and 4,000 shares of Roy Company common on July 1, 2018, for $24,000. Benet declared dividends on December 31, 2018 of $3,000. At the end of 2018, the fair value of Roy was $30,000 and the fair value of Benet was $28,000. At the end of 2019, the fair value of Roy was $32,000 and the fair value of Benet was $24,000. These investments are reported in the long-term asset section of Central's balance sheet. Central owns 8% of Benet Company and 12% of Roy Company. Assume that the Roy Company stock was sold during 2020 for $31,000. The proper accounting recognition at the date of sale was
A. a realized gain of $6,000. B. an unrealized loss $1,000. C. a realized gain of $7,000. D. a realized loss of $1,000.
When a company with a complex capital structure has a loss from continuing operations and potentially dilutive securities, the calculation of earning per share (EPS) results in
a. simple EPS (no potentially dilutive securities are included in the calculation). b. no EPS being reported. c. EPS being reported, using the same calculation of dilutive EPS as would be used if net income were positive. d. EPS being reported, using securities in the calculation of dilutive EPS that would be anti-dilutive if income were positive.
A ________ is a judgment of a court that permits a secured lender to recover other property or income from a defaulting debtor if the collateral is insufficient to repay the unpaid loan
A) deficiency judgment B) garnishment C) lien release D) foreclosure judgement
Which of the following statements about the foreign tax credit limitation is false?
A. Cross-crediting of taxes paid in high-tax and low-tax foreign jurisdictions can increase allowable foreign tax credits. B. The foreign tax credit cannot exceed the U.S. tax on foreign source income. C. Foreign tax credits in excess of the limit can be carried forward indefinitely. D. The foreign tax credit limitation is based on the ratio of foreign source income to total taxable income.