Question

f. 16. Wh atin and 5. What is bonus depreciation? How did the Tax Cuts and Jobs Act of 2017 temporarily extend and modify bonus depreciation? (LG2-3) 6. What are the costs and benefits of holding liquid securities on a firm's balance sheet? (LG2-1) 7. Why can the book value and market value of a firm differ? (LG2-1) 8. From a firm manager's or investor's point of view, which is more important--the book value of a firm or the market value of the firm? (LG2-2) 17. Wha whe 18. Wha 19. Wha man

question 8

Answer 1

Answer 6: Costs and benefits of holding liquid securities on a firm's balance sheet: The more liquid assets a firm hold, the less likely the firm will be to experience financial distress. However, liquid assets generate no profits for a firm. For Example: cash is the most liquid of all assets, but it earns no return for the firm. On other side, fixed assets are not liquid but provide the means to generate revenue. Thus, accountants must consider the trade-off between the advantages of liquidity on the balance sheet and the disadvantages of having money sit idle rather than generating profits.

Answer 7: The book value and market value differs: A firm's balance sheet shows its book value i.e. historical cost based on Generally Accepted Accounting Principles (GAAP). Under GAAP, assets appear on the balance sheet at price the firm pays for them regardless of what assets might be worth today. Inflation and many market forces make many assets worth more now than they were bought by firm. So, in most cases, book values differ widely from the market values for the same assets- the amount that the assests would fetch if they actually be sold.