Accounting Theory and Analysis
Case Studies
Case 4-1: Capital Asset Pricing Model
The capital asset pricing model illustrates how risk is incorporated into user decision models.
Required:
Discuss the capital asset pricing model, including systematic and unsystematic risk, β, the relationship between risk and return, how to avoid risk, and the relationship of β to stock prices.
Case 10-3: Equity Method and Disclosures
On July 1, 2017, Dynamic Company purchased for cash 40 percent of the outstanding capital stock of Cart Company. Both Dynamic and Cart have a December 31 year‐end. Cart, whose common stock is actively traded in the over‐the‐counter market, reported its total net income for the year to Dynamic and also paid cash dividends on November 15, 2017, to Dynamic and its other stockholders.
Required:
a. How should Dynamic report the foregoing facts in its December 31, 2017, balance sheet and its income statement for the year then ended? Discuss the rationale for your answer.
b. If Dynamic should elect to report its investment at fair value, how would its balance sheet and income statement differ from your answer to part (a)?
Respond to the required questions, double-spaced, APA format (source citations and reference insertions) essay.In each Case Study, you must use at least three (3) references, including the textbook (included below).
Text book reference:
Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2017). Financial accounting theory and analysis: Text and cases (12th ed.). Hoboken, NJ: Wiley
(This Assignment Box maybe linked to Turnitin.)
Please use attached template(See cover letter attachment, and use as template)