Question

Q#1 Briefly explain the following: a. What are various cost allocation methods as assets are held and used over time. Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. c. Explain the importance of working capital and its impact on cash flows d. Explain the purpose of stock dividends, stock splits, and report transactions. What is Return on Assets (ROA).Analyze a company's performance based on return on assets and its components. e. f.Describe the characteristics of common stock and identify the transactions affecting common stock.

Answer 1

a)Some of the cost allocation methods iused for overhead cost spread is Direct labour,machine time,square footage
b)For the bonds sold at par the bonds payable amount is nothing but the bond value and the interest expense is based on the ytm of bond and in this case it is same as coupon rate
Times interest earned ratio is nothing but the ratio of Earnings before interest and tax divided to interest expense. The higher it is better
c)working capital is nothing but the difference of current assets and current liabilites and this tells us if company has sort term assets to cover its current liabilites. The impact of cash flow it is very high
d)the purpose of stock dividend is to increase shares outstanding in market and stock split is nothing but reducing the face value of bond by which no of shares outstanding increases and this will improve the trading volume of shares as price will come down