Question

1. Each of the following questions requires a brief, but precise, answer.

(a) Identify the value of goodwill on the acquiring company’s balance sheet if

                  assets acquired is $400, liabilities assumed is $200, and cash spent on the

                  acquisition is $500. (b) Which financial ratio compares critical values on the income statement and

                  balance sheet and is considered a measure of management performance? (c) Which one of the following statements about corporate bondholders is true?:

                  they vote for the Board of Directors; the interest they receive is a contractual

                  obligation; they have a legal ownership interest in a company. (d) Which balance sheet item is commonly referred to as a hybrid security?

           (e) In general, does the common stock price of a profitable and respected

                  company tend to be equal to, lower than, or greater than its book value per

                  share?(f) In which direction will bond prices move when market interest rates are

                  increasing? What terminology is used to describe this relationship? (g) Which financial asset generates income that is always exempt from state and

                   local income tax?    (h) Suppose Corporation X declares a dividend that is payable to Corporation Y.

                  What percentage of the dividend earned is federally taxable to Corporation Y?

             (i) Suppose the value of a corporation’s total (tangible) assets is less than the total

                  market value of its common stock. If this company is acquired by another

                  corporation, what intangible asset will appear on the acquiring company’s

                  balance sheet?

         (j) Which financial variable results when dividends per share is added to retained

                  earnings per share?   (k) Which balance sheet item provides information about the number of common

                  stock shares outstanding? (l) Which two items on an income statement are added to their balance sheet

                  counterparts?   (m) Given identical time to maturity, would a U.S. government bond, a mortgage

                   bond, or a debenture offer the highest coupon rate? (n) Provide a numerical example of an interest coverage ratio that is unacceptable

                  to lenders.   (o) In which direction will market interest rates move when inflationary

                  expectations are increasing?    (p) Which income statement item is commonly described as a noncash expense?(q) With respect to their effect on corporate taxable income, how does interest

                  expense differ from dividends paid?

Answer 1

Ans-A

Total value of assets accuired $400

Less:Total value of liability ​​​​​​$200

Net assets. $200

Amount paid for accousition. $500

Balance will be the value of good will $300.

Amount paid more than the value of net assets is for goodwill.hence goodwill=$300

Ans-B

Financial ratios are created with the use of numerical values taken from financial statment to gain meaningfull info about a company. The numbers found on a company's financial statement are used to perform quatitative analysis and assess company's liquidity,leverage, growth,margin,profitability,rate of return,valuation and more

Financial ratios are grouped into the following

• Liquidity ratios
• Leverage ratios
• Efficiency ratios
• Profitability ratios
• Market value ratios

Following are the some ratios compare income statement and balacesheet

1. Current ratio= current assets/current liabilitt
2. Cash ratio= cash and cash equivalents/current liabilities
3. Debt ratio= total liability/total assets
4. Debt to equity ratio=total liability/share holders equity
5. Asset turnover ratio= net sales/average total asset
6. Inventory turnover ratio= cost of goods sold/average inventory

Ans-C

interest they receive is a contracual obligation.

Note : bond holders are not owners of company and they had no voting power in company.

Ans-D

hybrid securities often referred to as hybrids generally combine both debt and equity characteristics. The most common type of hybrid security is a convertible bond that has features of an ordinary bond but is heavily influenced by the price movements of the stock into which it is convertible.

Ans-E

Book value is the total value of a business' assets found on its balance sheet, and represents the value of all assets if liquidated.

Market value is the worth of a company based on the total value of its outstanding shares in the market, or its market capitalization.

Market value of profit making company tends to be greater than the company's book value, since market value captures non-tangibles as well as future growth prospects

Ans-F

A fundamental principle of bond investing is that market interest rates and bond prices generally move in opposite directions. When market interest rates rise, prices of fixed-rate bondsfall. this phenomenon is known as Interest rate risk

Ans-G

Municipal bonds (also known as "munis") are fixed-income investments that can provide higher after-tax returns than similar taxable corporate or government issues. In general, the interest paid on municipal issues is exempt from federal taxes and sometimes state and local taxes as well.

Ans-H

As per indian income tax act 1961

Dividend received by a domestic company from a foreign company, in which such domestic company has 26% or more equity shareholding, is taxable at a rate of 15% plus Surcharge and Health and Education Cess under Section 115BBD. Such tax shall be computed on a gross basis without allowing deduction for any expenditure.

Ans-I

There is no intangible asset in balance sheet of accuiring company.amount paid as consideration is more than the value of net assets is called goodwill value .there is no excess amount.

Ans-J

Carry value or book value EPS is the real cash worth of each share of company stock. Retained EPS is the amount of the earnings kept by the company rather than shared as dividends. Cash EPS is the actual total number of dollars earned

Ans-K

You can find the total number of shares in the shareholders' equity section of a company's balance sheet, which also summarizes the assets and liabilities. The numbers of authorized, issued and outstanding common shares are listed in this section, along with the number of preferred shares.

Ans-L

All capital nature items are transfer to balancesheet.

Ans-M