1) Is carrying value ever the same as market value? 2) What major advantage does
ID: 2453840 • Letter: 1
Question
1) Is carrying value ever the same as market value?
2) What major advantage does a company that has positive free cash flow have over a company that has negative free cash flow?
1) Which statement is more useful - the income statement or the statement of cash flows?
2) How would you respond to someone who says that the most important item on the statement of cash flows is the change in the cash balance for the year?
3) If a company has positive earnings, can cash flow from operating activities ever be negative?
1) How are past performance and industry norms useful in evaluating a company's performance? What are their limitations?
2) What is one way a company can improve its earnings per share without improving its earnings or net income?
3) Why is it essential that management compensation, including bonuses, be linked to financial goals and strategies that achieve shareholder value?
Explanation / Answer
The carrying amount of a company's bonds payable is the balance in the company's general ledger account Bonds Payable minus the amount in Discount on Bonds Payable or plus the amount in its account Premium on Bonds Payable. (If there is some unamortized bond issue cost associated with the bond, that would also be part of the carrying amount.)
The carrying amount will be different from the fair market value. For example, the company might depreciate the truck using the straight-line method, but the market value of the truck declines more rapidly in the first year and less rapidly in the later years of the truck's useful life. The market value of the bonds is affected by the daily changes in the market interest rates, whereas the carrying amount is unaffected by the day-to-day changes in the market interest rates.
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