Corporate Financial Reporting And Analysis A Global Perspective 4th Edition S. David Young, Jacob Cohen, Daniel A. Bens - Solutions

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7. Can you think of specific instances in which negative goodwill, or a bargain purchase, might occur?
6. What is “negative” goodwill, and how is it recognized?
5. When one firm acquires another firm, the former records the assets of the latter at fair value on the acquisition date, not the target’s historical cost. Why?
4. True or false: “Mergers” are not recognized under current financial reporting practice.
3. What happens to goodwill after it has been recognized?
2. How is goodwill determined?
1. What is goodwill?
10. How is use of the equity method subject to manipulation?How might a financial statement reader detect such behavior?
9. Can you think of an example where a company owns more than 20% of the outstanding equity of another company but does not use the equity method?
8. Why was the equity method established? What purpose does it serve?
7. What determines whether investments are classified as current or noncurrent?
6. Why are unrealized holding gains and losses on trading securities included in net income while unrealized holding gains and losses on available-for-sale securities are included in accumulated other comprehensive income?
5. Describe the fair value hierarchy.
4. For equity investments, which classification is more common for industrial firms reporting under IFRS, available-for-sale or trading, and why?
3. In the aftermath of the banking and economic crisis of 2008 and 2009, several banks reclassified investments from trading securities to held-to-maturity securities. What motive might they have had for doing this?
2. True or false: Debt securities can be classified as available-forsale or for trading purposes.
1. What is the difference between available-for-sale securities and trading securities? How do the accounting treatments differ under IFRS?
8. A company issues equity for $15 a share. The stated, or par, value of those shares is $1. Give the required journal entry for a typical American company and for a typical European company.
7. What is a stock dividend and what effect does it have on the balance sheet and income statement?
6. What effect does a stock split have on the balance sheet?
5. What is a stock split, and what motive might a company have for doing it?
4. How is the reissuance of repurchased shares accounted for?What if the price paid for repurchased shares exceeds their cost What if the price paid is below cost?
3. Describe the accounting for share buybacks.
2. What are the advantages of a convertible bond from the standpoint of the bondholders and the issuing corporation?
1. What is a convertible bond?
15.3 Deferred Income Taxes and the Statement of Cash Flows The operating activities section from recent statements of cash flows for Group Air France-KLM is shown below. A note from the Group’s fiscal year 2011 Annual Report is also provided.Requireda. Deferred taxes are a negative adjustment to
15.2 Interpreting Income Tax Disclosures The following note was taken from the 2011 Annual Report of Tesco, a global UK-based grocery and discount retailing chain.Requireda. Based on this disclosure, which figure do you think was higher: taxable income reported under tax law, or pretax income
15.1 Calculating Temporary and Permanent Differences Hernan Company reports the following information for the year:Book income before income taxes €636,000 Income tax expense €312,000 Income taxes payable for the year €96,000 Income tax rate on taxable income 40%The company has both permanent
10. True or false: Analysts tend to be more concerned about deferred tax assets than deferred tax liabilities.
9. True or false: The larger the gap between book income (i.e., income under GAAP or IFRS) and taxable income, the more confidence we have in the quality of the accounting numbers.
8. Why might a company have to write down a deferred tax asset?
7. What purpose is served by the deferred tax valuation allowance?
6. What is the biggest source of deferred tax assets?
5. What is the biggest source of deferred tax liabilities?
4. What is the difference between a deferred tax asset and a deferred tax liability?
3. Define permanent differences. Give some examples.
2. Define temporary differences. Give some examples.
1. What are deferred income taxes and why do they exist?
6. What is the difference between “service cost” and “interest cost?”
5. Define “underfunded” and “overfunded.”
4. As a prospective employee, which type of plan (defined benefit or defined contribution) do you prefer, and why?
3. Interest rates have sharply declined in most economies over the past 10 years. What effects would you expect this trend to have had on pension liabilities and pension expenses?
2. Many companies are closing down their defined benefit plans and replacing them with defined contribution plans. Why?
1. Describe the differences between defined benefit and defined contribution plans.
13.1 Accounting for Warranties The following note comes from a recent annual report for Sony Corporation:Sony provides for the estimated cost of product warranties at the time revenue is recognized by either product category group or individual product. The product warranty is calculated based upon
8. True or false: When companies recognize a provision, for whatever purpose, it is highly unlikely that they will be able to deduct the loss or expense on their tax returns.
7. What is meant by the term “provisions reversal,” and what effect does it have on the balance sheet and income statement?
6. What criteria determine whether a contingent liability should be accrued?
5. True or false: The widespread adoption of IFRS has led to an increase in reported provisions.
4. Companies should neither over- nor underprovision for losses and routine expenses such as bad debts. And yet both forms of misstatement are common. Why?
3. How are provisions used to “smooth” earnings?
2. What requirements must be met before a provision can be recognized?
1. Why are contingent liabilities often recognized on the balance sheet, but contingent assets are not?
12.3 Journal Entries for Bond Issuance and Subsequent Interest Payments On 1 July 2016, Rosenhurst Corporation issued £6 million face value, 10%, 10-year bonds for £6,815,439. The proceeds resulted in an effective interest rate of 8%. Rosenhurst uses the effectiveinterest method to amortize a
12.2 Amortization of Bond Discount and Premium Carmon Trading and Distribution Company issued $30 million, 10% coupon bonds on 1 January 2014, due on 31 December 2018.The market interest rate on the issuance date was 12%, and the bonds pay interest on 30 June and 31 December of each year.On January
12.1 Journal Entries and Balance Sheet Presentation for Bonds On 1 May 2016, Société LePoint issued €2,400,000, 9%, fiveyear bonds at face value. The bonds pay interest semiannually on 1 May and 1 November. Financial statements are prepared each year on 31 December.Requireda. Prepare the
7. Firm A issues €10 million face value, 8% semiannual coupon bonds at a price to yield 7% compounded semiannually. Firm B issues €10 million face value, 6% semiannual coupon bonds at a price to yield 7%. Will these firms receive the same initial issue price for these bonds? Explain.
6. True or false: The effective interest method gives a constant amount of interest expense on bonds each period.
5. What are the relative advantages and disadvantages of the effective interest method and straight-line amortization for bond discounts and premiums?
4. What happens to the carrying (i.e., balance-sheet) value of a bond after issuance, both for bonds issued at a premium and those issued at a discount?
3. True or false: The yield on a bond is independent of the coupon rate.
2. Describe the relationship between interest rates and bond prices.
1. What are the advantages to companies of issuing bonds instead of borrowing from commercial banks?
11-3 Executory Contracts Alcoa is one of the world’s leading producers of aluminum and related products. According to the company’s Year 6 Annual Report, Alcoa’s Australian subsidiary is party to a number of natural gas and electricity contracts that expire at various times over the next 20
11-2 Pennzoil-Quaker State and the Sale of Receivables Pennzoil-Quaker State (PQS) is one of the world’s leading producers of motor oil. The company sells some of its receivables through a special purpose entity. The receivables sold under this facility totaled $153 million at the end of Year 9
11-1 Lease Accounting at Metro AG Metro AG is one of the world’s largest discount retailers.Headquartered in Germany, its activities are segmented as follows:• Cash and carry (47%): Food and nonfood products at wholesale prices, primarily to business customers, under the Metro and Makro store
11.1 The Financial Reporting Effects of Selling Receivables The following note appears in Daimler’s 2011 Annual Report:Based on market conditions and liquidity needs, Daimler may sell portfolios of retail and wholesale receivables to third parties. At the time of the sale, Daimler determines
10.8 Journal Entries for Depreciation and Amortization Expense Prepare journal entries for each of the following transactions or events for Liu Cybersystems:a. Acquired computers costing $800,000 and software costing$80,000 on January 1, 2016. Liu expects the computers to have a service life of 10
10.7 Capitalizing or Expensing Costs Air France, a subsidiary of the Air France-KLM Group, is one of the world’s largest airlines. It operates a mixed fleet of Airbus and Boeing wide-bodied jets on long-haul routes and relies mainly on the Airbus A320 family of aircraft for shorter flights.
10.6 Interpreting Disclosures for Property, Plant, and Equipment Petrobras, which operates in the energy sector, is Brazil’s largest company. Its shares trade on several of the world’s leading stock exchanges. A portion of Petrobras’ balance sheet, its income statement, and extracts from a
10.5 Effects of Changes in Estimates on Depreciation Expense At the end of each year, Patty Chu, the chief accountant at Rex Lin Enterprises, a Singapore-based trading company, reviews long-term assets at the end of each year to determine whether changes are called for in how these assets are
10.4 Calculating Depreciation Expense On January 1, 2013, Double Happiness Delivery Company acquired a new truck for $90,000. The truck is estimated to have a useful life of five years and no residual value.Required Indicate the amount of the depreciation charge for each year of the asset’s life
10.3 Calculating and Analyzing Amortization Expense The 2003 Annual Report for Microsoft reports the acquisition of Navision:In fiscal 2003, Microsoft acquired all of the outstanding equity interests of Navision a/s, Rare Ltd., and Placeware, Inc.Navision, headquartered in Vedbaek, Denmark, is a
10.2 Analyzing Depreciation on PP&E The following note is taken from the 2004 Annual Report of ExxonMobil Corporation:December 31, 2004 December 31, 2003 Historical cost Accumulated depreciation Historical cost Accumulated depreciation(millions of dollars)Upstream $148,024 $62,013 $138,701 $58,727
10.1 Comparing the Effects of Depreciation Choice on Financial Ratios Dieter Loch AG is about to purchase two new assets – a machine for €75,000 and a state-of-the art forklift truck for €40,000. The assets would be acquired at the beginning of 2013. The company’s 2012 income statement and
12. How is a gain or loss determined on an asset sale?
11. True or false: most large, publicly traded companies use straight-line depreciation for book purposes but accelerated methods for tax.
10. Why are brand names and trademarks not amortized?
9. How should a company account for an asset, such as a building or piece of equipment, that has been fully depreciated?
8. True or false: the amortization period for an intangible asset is equal to its legal life.
7. Why are research costs expensed under IFRS, but development costs are capitalized? What’s the difference between“research” and “development”?
6. Why does the accounting treatment for repairs and maintenance differ from that of improvements?
5. What is goodwill? What is the proper accounting treatment for it?
4. Why are transport, installation, and training costs added to the asset account, and not expensed immediately?
3. IFRS permits the use of fair value accounting for property and plant assets. Why, then, do most companies prefer to use historical (or acquisition) cost?
2. Why do tax laws permit accelerated depreciation methods?
1. Describe each of the following terms: depreciation, amortization, and depletion.
9.5 Calculating Cost of Goods Sold Under FIFO and Specific Identification It is December 10 and Fraser Home Goods has four high-end microwave ovens in stock. All are identical, and each is priced at £200. The four ovens were purchased on different dates and at different cost: Oven #1 was purchased
9.4 The Lower of Cost or Net Realizable Value Rule Segal Company, a retailer of Nokia mobile phones, uses FIFO for costing its inventory. A physical count of inventory at the end of the year revealed the following:Model 3720 60 units at a per unit cost of €90 Model 6700 150 units at a per unit
9.3 Correcting Inventory Errors An internal audit at Parker Corporation discovered the following inventory valuation errors:• The 2010 year-end inventory was overstated by $34 000.• The 2011 year-end inventory was understated by $70 000.• The 2012 year-end inventory was understated by $23
9.2 Inventories and Ratio Analysis The following information is available for Romaine Corporation, a wholesaler, for 2010, 2011, and 2012:2010 2011 2012 Beginning inventory € 50,000 € 150,000 € 200,000 Ending inventory 150,000 200,000 240,000 Cost of goods sold 450,000 560,000 650,000 Sales
9.1 Calculating Inventory Under the FIFO and Average-cost Methods Enterprise Renaud, a distributor of ski equipment, sells a snowboard known as the RemyGlide. Information relating to Renaud’s purchases of RemyGlide snowboards during October is shown below. During the same month, 242 RemyGlide
13. True or false: Inventory cost-flow assumptions don’t matter much in periods of stable prices.
12. Do you expect the use of specific identification accounting to become more common or less common in the future? Why?
11. What is a major advantage and disadvantage of the specific identification method?
10. What is the difference between a perpetual and a periodic inventory system? Which system would you expect a large supermarket chain or discount retailer to use, and why?
9. How can a company create hidden reserves from inventory accounts?
8. What is the meaning of “lower of cost or market” and how does it apply to inventory accounting? What is the logic behind this rule?
7. True or false: Inventory accounting should follow from the actual physical flow of the inventory.
6. Can you think of why rapid economic growth and expanding industrial power in China has resulted in LIFO accounting becoming more attractive (in the few countries that allow it, of course)?

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Corporate Financial Reporting And Analysis A Global Perspective 4th Edition S. David Young, Jacob Cohen, Daniel A. Bens - Solutions

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