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Tessa H.
Accountant for a life science consulting company, graduate from Boston College
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Finance
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Question:

Companies are often eager to cut dividends when they are facing difficult times in profitability. Why would companies jump to this solution? How will potential investors react when they learn that these companies are cutting dividends?

Tessa H.
Answer:

Cutting dividends is an easy solution to declining profitability because there is a direct impact to retained earnings and cash flow. The company sees less cash going out, and assumes this will increase its stability and investor potential. However, the financial markets do not react will to this type of announcement, as it signals financial distress. As a result, investors are less likely to purchase stock, and the price of the stock usually declines.

Algebra
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Question:

The larger root of the equation (x + 8)(x - 4) = 0 is:

Tessa H.
Answer:

The first step in solving this equation for the value of x is to isolate x as a variable. There are two ways to do so, the first way would be to divide both sides of the equation by the term (x+8). This would result in the (x+8) term cancelling out on the left side, leaving (x-4). On the right hand of the equation, the division would be 0/(x+4). Zero divided by any number is 0, so the right side of the equation remains zero. Thus, you are left with (x-4)=0. If you add 4 to both sides, the equation becomes x=4, which is the first solution to the equation. The second way to isolate the x variable is to divide both sides of the equation by (x-4). This results in cancelling out that term on the left side, leaving (x+8)=0. If you subtract 8 from both sides, this results in x=-8. The larger root of the equation is x=4.

Accounting
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Question:

At the beginning of the year, a company's inventory was understated by $12,000, and its ending inventory was overstated by $32,000. As a result, the company's cost of goods sold for the year was:

Tessa H.
Answer:

The inventory account directly relates to the cost of goods sold account. The cost of goods sold reflects the value of the inventory that was sold and taken out of inventory. Therefore, if the inventory account is over or undervalued, cost of goods sold will also be affected. In this question, the beginning inventory was understated by $12,000, which implies that the good available for sale are undervalued. Thus, these goods being sold to customers are undervalued. The ending inventory is overstated by $32,000. This means that the amount of inventory taken out as sold to customers was understated, leaving a higher value in the ending inventory than intended. Thus, cost of goods sold was understated by $32,000 during the period. Combined with the $12,000 understatement from the beginning of the period, the overall understatement of cost of goods sold is $44,000.

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