{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}



Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: which is the historical cost less accumulated amortization. Estimated market value is not a generally accepted accounting principle for recording property, plant, and equipment. The $38,000 difference ($98,000 – $60,000) reduces total assets and reduces retained earnings. In fact, retained earnings becomes negative suggesting that there may have been several years of operating losses. The effect of the corrections also changes the debt‐to‐equity ratio: Prior to the correction ($94,000 ÷ $85,000) 1.11 After the correction ($94,000 ÷ $47,000) 2.00 This suggests that the company has assumed a larger debt burden than indicated on the original statement of financial position. Before making a final decision on investing in this company, you should examine the past three years of audited income statements and the past two years of audited statements of financial position to identify positive and negative trends for this company. You can also compare this company's debt‐to‐equity ratio to that of the industry. You should also learn as much about the industry as you can by reviewing recent articles on economic and technological trends which may have an impact on this company....
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online