An asset account which reports the carrying amount of a company’s investment in another enterprise.
An asset account which reports the carrying amount of a company’s investment in another enterprise.
Investment in Another Company. Positive Wrong. An increase in any asset (other than Cash) is assumed to have a negative effect on Cash. An increase in any asset (other than Cash) is assumed to be a use of Cash or a...
An asset account in a bank’s general ledger that indicates the amount at which the bank is reporting or carrying its investments.
A decentralized division of a corporation which is responsible for and has control over its costs, revenues, and investments.
The amounts earned on money invested. Often this is interest and dividends earned on a company’s investment in stocks and bonds of other companies.
A financial ratio that expresses the income statement effect from employing an asset as a percentage of the asset’s cost on the balance sheet.
. The specified rate could be the investor’s cost of capital or it could be another hurdle rate that must be earned. Advantages of using the net present value to evaluate investments include the following: All of an...
foregone by carrying out another alternative is the__________ cost. 5. A division’s profit minus a charge for its assets or capital employed is its __________ income. 6. The per unit selling price and purchase price...
, the businesses are referred to as profit centers. If the operating businesses make their own investment decisions, the businesses are referred to as investment centers. The production and administrative departments...
years ($50,000 + $50,000). Assume that another investment of $100,000 generates cash of $20,000 per year for two years and then provides cash of $40,000 per year for six additional years, its payback period is...
The amount of owner’s equity or stockholders’ equity reported on a company’s balance sheet. This is not an indication of the company’s fair market value.
A business organization different from a sole proprietorship, partnership, and corporation. As the name implies it provides the limited liability protection usually associated with a corporation. To learn more about this...
: The company has a sufficient, long-term investment that is restricted for the purpose of paying the bondholders the maturity amount of the bonds when they come due. Typically, this investment is known as a bond sinking...
This term is often associated with an investment in the bonds issued by another corporation if the bonds are traded on a bond exchange.
Assume that a company is considering an investment that will provide net cash inflows of $1,000 at the end of each year for five years. The amount of cash that the company must pay at the beginning of the investment is...
The long term asset category of a classified balance sheet which appears immediately after the current assets. Listed in this category would be a bond sinking fund, funds held for construction, the cash surrender value...
Accounts that have some restrictions. For example, an investment account and a cash account might be restricted for the construction of a new factory. The restrictions mean that these accounts be reported as a long-term...
What is the role of a company's controller? Definition of Company Controller A company’s controller is considered to be the chief accounting officer and the head of the accounting department. Role of the...
and an industrial division to more effectively market the company’s products. Each division’s manager is responsible for sales and expenses. However, if the company’s executive team makes all of the investment...
What are the limitations of the payback period? Definition of Payback Period The payback period is a common (but not the best) tool for screening a company’s potential investments. It uses the potential investment’s...
What is NPV? Definition of NPV NPV is the acronym for net present value, which can be calculated as follows: The present value of the future cash inflows Minus the cash investment Example of NPV Assume that a company...
Our Explanation of Future Value of a Single Amount will show you the power of compounded interest on a single deposit. You will see how the future value tables can be useful as well as the rule of 72.
Our Explanation of Evaluating Business Investments compares four of the techniques for reviewing potential capital expenditures. You will be introduced to accounting rate of return, payback, net present value, and...
The balance sheet classification that is reported immediately after current assets and before property, plant, and equipment.
The amount by which the proceeds from the sale of investments exceeded the carrying amount of the investments that were sold. It is reported as a non-operating or “other” item on a multiple-step income...
A current asset account which contains the amount of investments that can and will be sold in the near future.
to invest $100,000 in order to receive $50,000 one year later, $40,000 two years later, and $60,000 three years later. Using the present value of 1 factors for 16% (see above), the net present value of this investment...
The second section of the statement of cash flows. To learn more, see Explanation of Cash Flow Statement.
cash flows are discounted to their present values and then all of the present values (including the investment outflow of cash) are summed into a single amount. That single amount is known as the net present value....
An organization established by the U.S.’s Sarbanes-Oxley Act to oversee the auditors of corporations whose stock is publicly-traded. The PCAOB’s board members are appointed by the Securities and Exchange...
What if a company's Allowance for Doubtful Accounts is understated? Definition of Allowance for Doubtful Accounts The Allowance for Doubtful Accounts is a contra asset account. The Allowance account’s credit...
Why does a company prepare a bank reconciliation? Reasons for Preparing a Bank Reconciliation There are several reasons for a company to prepare a bank reconciliation: To safeguard the company’s cash. Performing a bank...
What is meant by nonoperating revenues and gains? Nonoperating revenues are the amounts earned by a business which are outside of its main or central operations. Nonoperating revenues are also described as incidental or...
describes an __________. 3. Methods that compute the present value of future cash flows are referred to as __________ cash flow techniques. 4. Part of the difference between a company’s net income during a specific...
The net result of combining the discounted cash inflows and the discounted cash outflows of an investment, project, company, etc.
The account in which the owner’s investment is recorded plus the net income earned by the company minus the draws made by the owner. Current year net income and draws will be in temporary accounts until the end of...
An amount earned by a company on its interest bearing bank accounts or other investments. The amount should be reported as Interest Revenues, Interest Income, or Investment Revenues in the accounting period in which the...
Corporations whose stock is traded on stock exchanges. Also referred to as publicly-traded corporations.
is the result of discounting all of the cash inflows and outflows and then combining all of their present values. This means that the original outflow (often the investment made at the present time) is a deduction from...
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