Inversely, when a share repurchase is seen as treasury stock, the cost of the treasury stock is naturally disclosed as a decrease in total shareholders’ equity. Alcoa would report the purchase of the treasury stock by debiting treasury stock and crediting cash for the charge of the purchase. The treasury stock ought to be disclosed independently in the shareholders' equity area of Alcoa’s balance sheet as an unallocated cut of shareholders' equity. These shares are treated as issued although not part of common stock outstanding. If subsequently resold for a sum larger than the cost, Alcoa should report for the sale of the treasury stock by debiting cash for the sale cost, crediting treasury stock for cost, and crediting additional paid-in capital from repurchased stock for the excess of the selling price over the cost.
Peter Swap I. Issue: Will recognizing compensation expense as part of Mizri Corporation’s stock compensation plan faithfully represent the exchange? II. GAAP List: * 718-10-30-22: An equity instrument for which it is not possible to reasonably estimate fair value at the grant date shall be accounted for based on intrinsic value * 718-20-35-3: A modification of an equity award shall be treated as an exchange of the original award for a new award incurring additional compensation cost for any incremental value III. Alternatives: A.
(2.0 points) TIP: If you don't remember how to calculate return on investment, review the Calculating ROI pages in Section 4, Lesson 2. 9. Describe two examples of debt investments. (1-2 sentences. 1.0 points) 10.
d. How should Lani report the lease transaction on its December 31, 2006, balance sheet? The reports should fall under Lani’s December 31, 2006 balance sheet which displays non current and should be noted separately. The capital ease should be listed under the capital lease on December 31, 2006. Case 13-5 Lease Classifications a. What criteria must be met by the lease in order that Doherty Company classify it as a capital lease?
(a) Cohen mistakenly used the historical data in estimating the cost of debt. She divided the interest expenses by the average balance of debt to get 4.3% before tax cost of debt. The WACC is used for discounting cash flows in the future, thus all components of cost must reflect firm’s concurrent or future abilities in raising capital. The historical data may not reflect Nike’s current or future cost of debt. The appropriate cost of debt can be calculated by using data provided in Exhibit 4 in the case to be forward looking.
2. Prepare a formal journal entry to record the treasury stock transaction. Treasury stock 400,000 Cash 400,000 3. Identify the specific paragraph of the FASB Codification which addresses this issue and submit a printout of this paragraph with your solution. Codification 505-30-30-3 guides that “If the purchase of treasury shares includes the receipt of stated or unstated rights, privileges, or agreements in addition to the capital stock, only the amount representing the fair value of the treasury shares at the date the major terms of the agreement to purchase the shares are reached shall be accounted for as the cost of the shares
The Weighted Average Cost of Capital (WACC) is an average representing the expected return on all of a company's securities. Each source of capital, such as stocks, bonds, and other debt, is assigned a required rate of return, and then these required rates of return are weighted in proportion to the share each source of capital contributes to the company's capital structure. The resulting rate is what the firm would use as a minimum for evaluating a capital project or investment. After studying Joanna Cohen’s analysis for Nike, Inc, we found some flaws and we believe that some of the assumptions that she made were incorrect and somewhat altered the outcome of the WACC calculation. i) Joanna used the total shareholders’ equity figure in 2001 from the balance sheet of Exhibit 3.
A. Shareholder wealth maximization B. Profit maximization C. Stakeholder maximization D. EPS maximization 4. What is the most appropriate goal of the firm? A.
Dixita Patel Chapter 6 homework Managerial Finance July 31, 2012 Critical Thinking 6.6. Coupon rate: how does bond issuer decide on the appropriate coupon rate to set on its bonds? Explain the difference between the coupon rate and the required return on a bond price? Coupon rate is the annual coupon divided by the face value of a bond. In this case Bond Issuers look at outstanding bonds of comparable maturity and risk.
1.4 Compare and contrast debt and equity as a source of funds for financial claims. Financial claims: written promises to pay a specific sum of money (the principal) plus interest for the privilege of borrowing money over a period of time. Financial claims are issued by DSUs (liabilities) and purchased by SSUs (assets). Debt Funds: Equity Funds: Funds supplied in the form of a loan. Classified into short-term or long-term facilities Short-term = money Long-term = capital Suppliers of loans or debt funds face credit risk Credit risk: the risk the borrower won’t pay back loan Funds supplied in the form of the acquisition of an ownership share of a business.