Suppose that Myers and Myers in P3-8 paid no dividends during 2012 and that the December 31,
Question:
Suppose that Myers and Myers in P3-8 paid no dividends during 2012 and that the December 31, 2012, balance sheet looks like the one below. (This problem requires knowledge of present value calculations. Refer to Appendix A.)
Assume that the investor in P3-8 was correct (i.e., the company produced $20,000 cash during 2012) and that the investor's expectations at the end of 2012 are unchanged. Assume limber that an objective appraisal of the company's assets revealed the following FMVs as of December 31. 2012:Cash $10,000Short-term investments 20,000Land 66,000Buildings and machinery 32,000Total FMV$148,000REQUIRED:a. What dollar amount did Myers and Myers report in 2012 for net income under generally accepted accounting principles?b. Calculate net income during 2012, using fair market values as the asset and liability valuation bases (i.e., FMV2012 ??? FMV2011).C. Calculate economic income for 2012 (i.e., cash received during 2012 plus the change in present value). The discount rate is still 10 percent.d. Discuss the differences among these three measures of income. Discuss some of the strengths and weaknesses of eachmeasure.
Balance SheetBalance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
Step by Step Answer:
a Ending retained earnings Beginning retained earnings Net Income Dividends 40000 16000 Net Income 0 Net Income 24000 b 2012 FMV FMV of total assets Total liabilities 148000 6000 20000 122000 2011 FMV ...View the full answer
