Unit_3_assignment - 1. Question: 1. Explain the effect of...

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1. Question: 1. Explain the effect of each of the following transactions on the balance sheet of a firm: a. It issues $2 million of new common stock b. It buys a new plant and equipment at a cost of $3 million. c. It reports a large loss for the year. d. It increases the dividends paid on its common stock. Your Answer: A.Credit Common Stock 2 Million, B Debit 3 million, Equipment C.(loss) amount in Red D.Debit paid Dividends Instructor Explanation: The first transaction increases the amount of cash the company has and also increases stockholder's equity. The second transaction would decrease cash but increase Property, Plant & Equipment by the same amount. A large loss would decrease stockholder's equity. Finally, increased dividends would decrease cash and decrease stockholder's equity. Points Received: 3 of 4 Comments: c. you basically reiterated the question, but didn't state which account would be impacted. 2. Question: Superior Medical System's 2005 balance sheet showed total common equity of $2,050,000. The company had 100,000 shares of stock outstanding which sold at a price of $57.25 per share. By how much did the firm's market value and book value per share differ?
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Your Answer: $36.7 5 C ORR ECT $38.2 5 $39.5 0 $40.2 5 $51.0 0
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Instructor Explanation: Balance sheet: market value vs. book value Shares Outstanding 100,000 Price per share $57.25 Total common equity $2,050,000 Book value per share $20.50 Difference between book and market value $36.75
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This note was uploaded on 12/03/2010 for the course FINANCE fin123 taught by Professor Sjqjhc during the Spring '10 term at Mercer County Community College.

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Unit_3_assignment - 1. Question: 1. Explain the effect of...

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