Zhang Corp

question 40

Multiple Choice

Zhang Corp. owns 40% of Magnor Company's common stock. Magnor pays $97,000 in total cash dividends to its shareholders. Zhang's entry to record this transaction should include a:

• A) Credit to Long-Term Investments for $38,800.
• B) Debit to Dividends for $38,800.
• C) Credit to Cash for $97,000.
• D) Debit to Long-Term investments for $97,000.
• E) Debit to Dividends for $97,000.

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Definitions:

Plowback Ratio

The proportion of earnings retained by a company after dividends are paid, often used for reinvestment in the business or to pay down debt.

P/E Ratio

Price-to-Earnings Ratio, a valuation metric that compares a company's stock price to its per-share earnings.

Capital Asset Pricing Model (CAPM)

A model used to determine the theoretical expected return of an investment given its risk, by relating the risk of an asset to its expected return through beta.

Underpriced Stock

A stock that is selling for less than its presumed intrinsic value, suggesting it may be a good buying opportunity.