Share
Explore BrainMass

Wilde Corporation owns 30% of the outstanding stock of Berni

Wilde Corporation owns 30% of the outstanding stock of Bernie, Inc. Bernie recorded net income of $10M and paid dividends of $3M in 2005. For each of the following ratios, state the effect (higher, lower or no effect) that the use of the equity method would have on Wilde's financial ratios compared to the use of the cost method in 2005. Explain and discuss your answers. Gross margin. Total asset turnover. Cash flow from operations to current liabilities. Debt to equity .

Solution Preview

Equity Method transactions -

LT Investment (asset) increases $3,000,000. Investment Income increases $3,000,000, and Cash also increases $900,000. LT Investment decreases $900,000.

In the ...

Solution Summary

Wilde Corporation owns 30% of the outstanding stock of Bernie, Inc. Bernie recorded net income of $10M and paid dividends of $3M in 2005. For each of the following ratios, state the effect (higher, lower or no effect) that the use of the equity method would have on Wilde's financial ratios compared to the use of the cost method in 2005. Explain and discuss your answers. Gross margin. Total asset turnover. Cash flow from operations to current liabilities. Debt to equity .

$2.19