Cando Communications (CC) is a public company that owns and operates 10 broadcast television stations and several specialty cable channels, 10 newspapers (including the International Post), and many other non-daily publications. It has a 57.6% economic interest in Australia TV (in Australia) and a 29.9% interest in Ulster TV (in Northern Ireland)

According to the notes to the annual financial statements, the company owns approximately 15% of the shares and all the convertible and subordinated debentures of Australia TV. The convertible debentures are convertible into shares that would represent 50% of the companys total issued shares at the time of conversion. In total, including the debentures, the investment in Australia TV yields a distribution that is equivalent to 57.5% of all distributions paid by Australia TV. CC has a contractual right to be represented on the board of directors and has appointed three of the boards 12 members.

Although the company has tried to influence the decisions made by Ulster TV management, it has been unsuccessful and does not have any representation on the board of directors.

Investments represent approximately $150 million (about 5% of total assets). Even though revenues were up by 15%, net income was only $8 million for the year, down from $50 million the prior year.

INSTRUCTIONS:

Adopt the role of a financial analyst and analyze the financial reporting issues. Q1: List three environmental (economic, political, social) factors that influence the operations of Cando Corporation (CC).

Q2: List four situational (pertaining specifically to Cando) factors that affect your analysis of the company.

Q3: List three principal accounting issues that the firm must resolve. Call them Issues 1, 2 and 3.

Q4: Refer to Issue 1 from your answer to question 3. List the alternative accounting policies that are available to resolve the issue.

Q5: Analyze the alternative accounting policies listed in question 4. Which, among these would you recommend? Justify your recommendation.

Q6: Refer to Issue 2 from your answer to question 3. List the alternative accounting policies that are available to resolve the issue.

Q7: Analyze the alternative accounting policies listed in question 6. Which, among these would you recommend? Justify your recommendation.

Q8: Refer to Issue 3 from your answer to question 3. List the alternative accounting policies that are available to resolve the issue.

Q9: Analyze the alternative accounting policies listed in question 8. Which, among these would you recommend? Justify your recommendation.

Q10: What are two restrictions that are in place on the accounting policies that Cando may follow?

Q11: What is the return on assets for Cando in the current year?

Q12: Cando owns all the convertible and subordinated debentures of Australia TV. Will this fact influence your analysis? How would your analysis be affected?

Q13: What are two reasons for Cando investing in financial securities?

Q14: Would you recommend that Cando increase its financial investment portfolio? Give reasons for your answer.