What Is an Example of an Endowment Effect

question 12

Multiple Choice

What is an example of an endowment effect?

• A) Mark paid $3,100 for a used car that he values at $4,000. Recently, Mark was offered $4,400 for the car but refuses to sell it.
• B) Sammy receives increasing marginal utility as his 401K plan increases.
• C) Toby prefers a guaranteed $200 to a gamble with an expected value of $200.
• D) Deana refuses to transfer money from her checking account into her savings account, even though she has paid all her monthly bills.

Distinguish between the cost and equity methods of recording investments in subsidiaries.

Identify the adjustments necessary in calculating the ending non-controlling interest (NCI) balance on the consolidated statement of financial position (SFP).

Calculate and understand the impact of the equity method on the consolidated retained earnings balance.

Evaluate the fair valuation of subsidiary's assets and liabilities at acquisition and its subsequent impact on investment accounts.

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Definitions:

Months

Units of time, approximately 1/12th of a year, used in calendars to segment time.

Maturity Value

The total amount that will be paid to the investor at the end of a fixed-income investment's life.

Months

Units of time, each roughly equivalent to one twelfth of a year, used in planning and organizing.

Rate Of Interest

The percentage of the principal that will be charged for a particular period of time, normally one year.