Wilde Corporation owns 30% of the outstanding stock of Bernie Inc. Bernie recorded net income of $10 million and paid dividends of $3 million in 2006. For each of the following ratios, state the effect (higher, lower, or no effect) that the use of the equity method would have on Wilde's financial ratios compared to the use of the cost method in 2006. Explain your answers.

i. Gross margin
ii. Total asset turnover
iii. Cash flow from operations to current liabilities
iv. Debt-to-equity

Question

i. Gross margin
ii. Total asset turnover
iii. Cash flow from operations to current liabilities
iv. Debt-to-equity

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The Answer of Wilde Corporation owns 30% of the outstanding stock of Bernie Inc. Bernie recorded net income of $10 million and paid dividends of $3 million in 2006. For each of the following ratios, state the effect (higher, lower, or no effect) that the use of the equity method would have on Wilde's financial ratios compared to the use of the cost method in 2006. Explain your answers.

i. Gross margin
ii. Total asset turnover
iii. Cash flow from operations to current liabilities
iv. Debt-to-equity

Wilde Corporation Owns 30% of the Outstanding Stock of Bernie