General Allied Conglomerates (GAC) and First Star Corporation (FSC) both had a bad year in 2012; the
Question:
Assume that top management of GAC and FSC are pondering ways to improve their ratios. In particular, management is considering the following transactions:
1. Borrow $100 million on long-term debt
2. Purchase treasury stock for $500 million cash
3. Expense one-fourth of the goodwill carried on the books
4. Create a new auto design division at a cash cost of $300 million
5. Purchase patents from another manufacturer, paying $20 million cash
Requirement
Top management wants to know the effects of these transactions (increase, decrease, or no effect) on the following ratios:
a. Current ratio
b. Debt ratio
c. Return on equity
Goodwill
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Trans action Current Ratio Debt Ratio Return on Equity 1 Increase Increase No ef...View the full answer
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