What is the accounting equation? Define each term in the ...

[iveyjurea]

What is the accounting equation? Define each term in the equation.

Question 2

When Compaq and Hewlett-Packard decided to become one company, this was an example of a(n)
 A) acquisition.
  B) hostile takeover.
  C) horizontal merger.
  D) conglomerate merger.
  E) joint venture.

[mammy1697]

Answer to Question 1

The accounting equation: Assets = Liabilities + Owners' Equity
Assets are things of value that a firm owns, such as its cash, inventory of goods available for sale, land, machinery, equipment, and buildings.

Liabilities indicate what the firm owes to non-owners or, put another way, they represent the claims non-owners have against the firm's assets. The amount the firm owes to a bank when it takes out a loan is an example of a liability. Accounts payable, what the firm owes suppliers when it buys supplies on credit, is another example of a liability.

Owners' equity refers to the claims the owners have against their firm's assets. In a corporation, one of the key owners' equity accounts is common stock, which represents the shares of ownership investors have in a business. Retained earnings, which are the earnings that have been reinvested in the company (rather than distributed to owners), are also included in owners' equity.

Answer to Question 2

C

[iveyjurea]

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