Question

Does the cost of equity appear on the income statement? Why does equity have a cost...

Does the cost of equity appear on the income statement?

Why does equity have a cost when the company is not required to pay dividends to common stockholders?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Part 1:

Cost of equity does not appear directly on the income statement. However, the amount that remains after subtracting the dividends from the net income is added to retained earnings in balance sheet and is used to increase equity.

Part 2:

Equity shareholders own a part of a company. Cost of equity is the compensation that the equity shareholders demand for taking the risk of ownership in a company. Cost of equity refers to the opportunity cost of capital that the common equity share holders can get if they invest their money elsewhere to earn returns.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Question 1 Net income does not appear in the numerator of the A. return on assets....
Question 1 Net income does not appear in the numerator of the A. return on assets. B. profit margin. C. payout ratio. D. return on common stockholders' equity. Question 2 he following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. Assets Cash and short-term investments   $ 45,000 Accounts receivable (net)   25,000 Inventory   20,000 Property, plant and equipment   210,000 Total Assets   $300,000 Liabilities and...
1. Dividends would appear on Select one: a. Income Statement b. Statement of Retained Earnings c....
1. Dividends would appear on Select one: a. Income Statement b. Statement of Retained Earnings c. Balance Sheet Statement d. None of the above 2. If assets increase $80,000 during a given period and liabilities increase $30,000 during the same period, stockholders' equity must have:::If assets increase $80,000 during a given period and liabilities increase $30,000 during the same period, stockholders' equity must have: Select one: a. decreased $50,000 b. decreased $40,000 c. increased $50,000 d. increased $30,000 3. Salary...
Cost of goods sold would NOT appear on the income statement of which of the following...
Cost of goods sold would NOT appear on the income statement of which of the following types of businesses? a. Merchandising Company b. Manufacturing Company c. All of the listed would have a cost of goods sold account d. Service Company
The statement of stockholders’ equity—or the statement of retained earnings—reconciles and reports a firm’s net income,...
The statement of stockholders’ equity—or the statement of retained earnings—reconciles and reports a firm’s net income, dividends paid, shares issued and repurchased, and change in retained earnings during a particular year. Which of the following best describes a firm’s stockholders’ equity? Equity is the sum of what a corporation’s initial stockholders paid when they bought company shares and the earnings that the company has retained over its years of operations. Equity is the difference between a corporation’s paid-in capital and...
The following is the statement of stockholders' equity for Cloud Computer Service Company: Cloud Computer Service...
The following is the statement of stockholders' equity for Cloud Computer Service Company: Cloud Computer Service Company Statement of Stockholders' Equity For the Year Ended December 31, 20Y8 Common Stock Retained Earnings Totals Balances, January 1, 20Y8 $50,000 $17,068 $67,068 Net income ??? ??? Dividends (5,000) (5,000) Balances, December 31, 20Y8 $50,000 $18,905 $68,905 Calculate the net income to complete the statement.
Income Statement, Retained Earnings Statement, and Balance Sheet The following financial data were adapted from a...
Income Statement, Retained Earnings Statement, and Balance Sheet The following financial data were adapted from a recent annual report of Target Corporation for the year ending January 31. In millions Accounts payable $13,714 Cash 1,588 Common stock 5,724 Cost of goods sold 95,720 Debt and other borrowings 34,966 Income tax expense 3,054 Interest expense 1,732 Inventories 15,836 Other assets 5,684 Other expenses 5,154 Other liabilities 12,938 Property, plant, and equipment 58,298 Sales 136,932 Selling, general, and administrative expenses 28,212 Instructions:...
Carr Corporation's comparative balance sheet and income statement for last year appear below: Comparative Balance Sheet...
Carr Corporation's comparative balance sheet and income statement for last year appear below: Comparative Balance Sheet Ending Balance Beginning Balance Cash and cash equivalents $ 3,150 $ 25,300 Accounts receivable 90,500 78,100 Inventory 42,100 48,410 Prepaid expenses 9,270 15,450 Long-term investments 259,200 216,000 Property, plant, and equipment 525,300 504,000 Less accumulated depreciation 326,400 318,600 Total assets $ 603,120 $ 568,660 Accounts payable $ 9,900 $ 27,250 Accrued liabilities 26,160 18,020 Income taxes payable 52,900 50,600 Bonds payable 164,800 220,000 Common...
Carr Corporation's comparative balance sheet and income statement for last year appear below: Comparative Balance Sheet...
Carr Corporation's comparative balance sheet and income statement for last year appear below: Comparative Balance Sheet Ending Balance Beginning Balance Cash and cash equivalents $ 3,090 $ 23,920 Accounts receivable 87,200 72,420 Inventory 41,700 49,350 Prepaid expenses 9,720 16,500 Long-term investments 254,400 212,000 Property, plant, and equipment 525,300 513,600 Less accumulated depreciation 326,400 303,850 Total assets $ 595,010 $ 583,940 Accounts payable $ 9,270 $ 26,750 Accrued liabilities 25,200 17,510 Income taxes payable 51,900 50,140 Bonds payable 171,200 220,000 Common...
Chapter 12 - 11 Statement of The owners' equity in a corporation.Stockholders' Equity The stockholders’ equity...
Chapter 12 - 11 Statement of The owners' equity in a corporation.Stockholders' Equity The stockholders’ equity T accounts of I-Cards Inc. for the year ended December 31, 20Y9, are as follows. Common Stock Jan. 1 Balance 1,700,000 Apr. 14 Issued 15,600 shares 780,000 Dec. 31 Balance 2,480,000 Paid-In Capital in Excess of Par Jan. 1 Balance 272,000 Apr. 14 Issued 15,600 shares 187,200 Dec. 31 Balance 459,200 Treasury Stock Aug. 7 Purchased 2,600 shares 124,800 Retained Earnings Mar. 31 Dividend...
Alpha Co.'s 2020 income statement showed net income of $1,340,000 and the 2020 Statement of Stockholders'...
Alpha Co.'s 2020 income statement showed net income of $1,340,000 and the 2020 Statement of Stockholders' equity showed that the Company declared dividends of $340,000, and issued common stock for $1,050,000. The Company also purchased 11,000 treasury shares at $7/share during 2020. Alpha Co. had retained earnings of $7,500,000 on January 1, 2020. What was Alpha Co.'s balance of retained earnings on December 31, 2020?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT