I am having difficulty with Accounting Theories....could you provide me with some assistance with this problem?
1. Determine the income under each of the following equity theories:
o Proprietary theory.
o Entity theory (orthodox view)
o Entity theory (unorthodox view)
o Residual theory
2. Would any of your answers change if the preferred stock is convertible at any time at the ratio of 2 preferred shares for 1 share of common stock?
(See attached file for full problem description)
Under the proprietorship theory:
From the Revenues of 1,000,000, the Operating expenses of 700,000 are reduced. From this is reduced the interest to be paid to debenture holders that is 80,000 this gives us the Asset - Liability equation giving us the owners equity. That is the income of $220,000.
Under the orthodox theory of entity:
From the Revenues of 1,000,000, the Operating expenses of 700,000 are reduced. In the orthodox theory even the interest distributions are regarded as income distributions, not expenses. So we do not reduce the debenture interest and the income is $ 300,000.
Under the non orthodox theory of ...