Questions and Answers of Financial Accounting For MBA

Following are the income statement and balance sheet for Abbott Laboratories (ABT).\section*{Required}a. Compute net operating assets (NOA) for year end 2007.b. Compute net operating profit after tax
Refer to the information in P12-31 to answer the following requirements.\title{Required}a. Estimate the value of a share of Kellogg common stock using the residual operating income (ROPI) model.b.
\\ Assume that you are the CEO of a small publicly traded company. The operating performance of your \\ company has fallen below market expectations, which is reflected in a depressed stock price. At
Explain how information contained in financial statements is useful in pricing securities. Are there some components of earnings that are more useful than others in this regard? What nonfinancial
In general, what role do expectations play in pricing equity securities? What is the relation between security prices and expected returns (the discount rate, or WACC, in this case)?
What are free cash flows to the firm (FCFF) and how are they used in the pricing of equity securities?
Define the weighted average cost of capital (WACC).
Define net operating profit after tax (NOPAT).
Define net operating assets (NOA).
Define the concept of residual operating income. How is residual operating income used in pricing equity securities?
What insight does disaggregation of RNOA into net operating profit margin and net operating asset turnover provide for managing a company?
In a recent quarterly earnings announcement, Starbucks announced that its earnings had markedly increased (up 7 cents per share over the prior year) and were 1 cent higher than analysts'
3.M Company reports net operating profit after tax (NOPAT) of $\$ 4,201$ million in 2007. Its net operating assets at the beginning of 2007 are $\$ 12,561$ million. Assuming a $6 \%$ weighted
3.M Company reports net operating profit after tax (NOPAT) of $\$ 4,201$ million in 2007. Its net operating assets at the beginning of 2007 are $\$ 12,561$ million and are $\$ 15,310$ million
In its 2007 fiscal year annual report, PepsiC o reports net operating income after tax (NOPAT) of $\$ 5,721$ million. As of the beginning of fiscal year 2007 it reports net operating assets of \(\$
Following are forecasts of Target Corporation's sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of January 31, 2008 .Answer the following requirements assuming a
Refer to the information in M12-13 to answer the following requirements.a. Estimate the value of a share of Target common stock using the residual operating income (ROPI) model as of January 31,
Following are forecasts of Abercrombie \& Fitch's sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of January 31, 2008.Answer the following requirements assuming a
Refer to the information in E12-15 to answer the following requirements.a. Estimate the value of a share of Abercrombie \& Fitch common stock using the residual operating income (ROPI) model as of
17.Following are forecasts of sales, net operating profit after tax (NOPAT), and net operating assets (NOA) its of March 1. 2008. for linatinn inAnswer the following requirements assuming a discount
Refer to the information in E12-17 to answer the following requirements.a. Estimate the value of a share of Best Buy common stock using the residual operating income (ROPI) model as of March 1, 2008
Following is the balance sheet for $3 \mathrm{M}$ Company.a. Compute net operating assets (NOA) and net nonoperating obligations (NNO) for 2007b. For 2007, show that: $\mathrm{NOA}=\mathrm{NNO}+$
Following is the income statement for $3 \mathrm{M}$ Company.Compute net operating profit after tax (NOPAT) for 2007 , assuming a federal and state statutory tax rate of $35.9 \%$ 3M COMPANY
Following are forecasts of 3M Company's sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of December 31, 2007Answer the following requirements assuming a discount rate
Refer to the information in E12-21 to answer the following requirements.a. Estimate the value of a share of $3 \mathrm{M}$ Company common stock using the residual operating income (ROPI) model as
This module focused on two different valuation models: the discounted cash flow (DCF) model and the residual operating income (ROPI) model. The models focus on free cash flows to the firm and on
The net operating profit margin and the net operating asset turnover components of net operating assets are often termed value drivers, which refers to their positive influence on stock value by
Following are the income statement and balance sheet for Intel Corporation.\section*{Required}a. Compute Intel's net operating assets (NOA) for year-end 2007.b. Compute net operating profit after tax
Refer to the information in P12-25 to answer the following requirements.\section*{Required}a. Estimate the value of a share of Intel common stock using the residual operating income (ROPI) model as
Following are the income statement and balance sheet for TJJ Companies.\section*{Required}a. Compute net operating assets (NOA) as of January 26, 2008.b. Compute net operating profit after tax
Refer to the information in P12-29 to answer the following requirements.\section*{Required}a. Estimate the value of a share of Abbott Laboratories common stock using the residual operating income
Following are the income statement and balance sheet for Abbott Laboratories (ABT).\section*{Required}a. Compute net operating assets (NOA) for year end 2007.b. Compute net operating profit after tax
Refer to the information in P12-29 to answer the following requirements.\section*{Required}a. Estimate the value of a share of Abbott Laboratories common stock using the residual operating income
NCI Building Systems, reports the following footnote to its $200710-\mathrm{K}$ related to its manufacturing of metal coil coatings and metal building components.a. How has NCI reported this
DeFond Company signed a 90 -day, $8 \%$ note payable for $\$ 7,200$ on December 16. Use the financial statement effects template to illustrate the year-end December 31 accounting adjustment
For each of the following situations, indicate the liability amount, if any, that is reported on the balance sheet of Basu. Inc.. at December 31, 2009 .a. Basu owes $\$ 110,000$ at year-end 2009
The following notice appeared in The Wall Street Journal regarding a bond issuance by Boston Scientifica. Discuss the relation among the coupon rate, issuance price, and yield for the 2011
On April 30, one year before maturity, Nissim Company retired $\$ 200.000$ of its $9 \%$ bonds payable at the current market price of 101 ( $101 \%$ of the bond face amount, or \(\$ 200.000
Amgen (AM(iN) reports the following in the long-term debt footnote to its $200710-\mathrm{K}$.The aggregate contractual maturities of all long-term debt obligations due subsequent to December 31,
Indicate the proper financial statement classification (balance sheet or income statement) for each of the following liability-related accounts.a. Gain on Bond Retirement\section*{e. Bond Interest
Comcast Corporation reports the following information from its Management Discussion and Analysis section of its $200710-\mathrm{K}$a. The financial ratios to which Comcast refers are similar to
Holthausen Corporation issued $400,000 of 11%, 20-year bonds at 108 on January 1, 2005. Interest is payable semiannually on June 30 and December 31. Through January 1, 2010, Holthausen amortized
Dechow, Inc., issued $250,000 of 8%, 15-year bonds at 96 on July 1, 2005. Interest is payable semiannually on December 31 and June 30. Through June 30, 2010, Dechow amortized $3,000 of the bond
Compute any interest accrued for each of the following notes payable owed by Penman, Inc., as of December 31, 2009 (assume a 365-day year). Lender Issuance Date Principal Coupon Rate (%) Term
Cummins reports the following information in the Management Discussion \& Analysis section of its $200710-\mathrm{K}$ report.Financial Covenants and Credit Rating A number of our contractual
a. Purchases $\$ 300$ of inventory on credit.b. Sells inventory for $\$ 420$ on credit.c. Records $\$ 300$ cost of sales for transaction $b$.d. Receives $\$ 420$ cash toward accounts
On January 1, 2009, Bushman, Inc., issues $\$ 500,000$ of $9 \%$ bonds that pay interest semiannually and mature in 10 years (December 31, 2018).a. Using the Excel PRICE function, compute the
Waymire Company sells a motor that carries a 60 -day unconditional warranty against product failure. From prior years' experience, Waymire estimates that $2 \%$ of units sold each period will
The following independent situations represent various types of liabilities. Analyze each situation and indicate which of the following is the proper accounting treatment for the company: (a) record
Refer to the discussion of and excerpt from the Harley-I)avidson warranty reserve on page $8-9$ to answer the following questions.a. Using the financial statement effects template, record
On January 1, Hutton Corp. issued $\$ 300,000$ of 15 -year, $10 \%$ bonds payable for $\$ 351,876$, yielding an effective interest rate of $8 \%$. Interest is payable semiannually on June 30
Ford reports the following information from its Management Discussion and Analysis section of its $200710-\mathrm{K}$ report.a. What financial ratios do credit rating companies such as the four
Lundholm, Inc., reports financial statements each December 31 and issues $\$ 500,000,9 \%, 15$-year bonds dated May 1, 2009, with interest payments on October 31 and April 30. Assuming the bonds
On January 1, 2009, McKeown, Inc., issued $\$ 250,000$ of $8 \%$, 9 -year bonds for $\$ 220,776$, which implies a market (yield) rate of $10 \%$. Semiannual interest is payable on June 30 and
On January 1, 2009, Shields, Inc., issued $\$ 800,000$ of $9 \%, 20$-year bonds for $\$ 879,172$, yielding a market (yield) rate of $8 \%$. Semiannual interest is payable on June 30 and
i)eere \& Company's 2007 10-K reports the following footnote relating to long-term debt. Deere's borrowings include $\$ 300$ million, $7.125 \%$ notes, due in 2031 (highlighted below).
Refer to Tables 1 and 2 in Appendix A near the end of the book to compute the present value for each of the following amounts:a. $\$ 90,000$ received 10 years hence if the annual interest rate
On January 1, 2009, Trueman Corporation issued $\$ 600,000$ of 20 -year, $11 \%$ bonds for $\$ 554,860$, yielding a market (yield) rate of $12 \%$. Interest is payable semiannually on June 30
On January 1, 2009, Verrecchia Company issued $\$ 400,000$ of 5 -year, $13 \%$ bonds for $\$ 446,329$, yielding a market (yield) rate of $10 \%$. Interest is payable semiannually on June 30
The Pepsi Bottling Group reports $\$ 4,788$ million of long-term debt outstanding as of December 2007 in the following schedule to its $10-\mathrm{K}$ report.Debt Covenants Certain of our senior
CVS Corporation discloses the following as part of its long-term debt footnote in its $10-\mathrm{K}$.\section*{BORROWING AND CREDIT AGREEMENTS}Following is a summary of the Company's borrowings as
Reproduced below is the long-term debt footnote from the $10-\mathrm{K}$ report of Southwest Airlines.*The carrying value of these debentures is 103 while the face value is 100 . The company marks
Comcast Corporation reports long-term senior notes totaling over $31 billion in its 2007 10-K. Following are selected ratios from Exhibit 8.6 computed for Comcast Corp. utilizing its 2007
What is meant by preferred dividends in arrears? If dividends are two years in arrears on $\$ 500,000$ of $6 \%$ preferred stock, and dividends are declared at the end of this year, what amount
Distinguish between authorized shares and issued shares. Why might the number of shares issued be more than the number of shares outstanding?
During the current year, Beatty Company, (a) issues 8,000 shares of $\$ 50$ par value preferred stock at $\$ 68$ cash per share and $(b)$ issues 12,000 shares of $\$ 1$ par value common stock
During the current year, Magliolo, Inc., (a) issues 18,000 shares of $\$ 10$ par value preferred stock at $\$ 48$ cash per share and (b) issues 120,000 shares of $\$ 2$ par value common stock
Following is the 2008 stockholders' equity section from the (Yisco Systems, Inc, balance sheet.a. For the $\$ 33,505$ million reported as "common stock and additional paid-in capital," what portion
On January 1, Bartov Company issues 5,000 shares of $\$ 100$ par value preferred stock at $\$ 250$ cash per share. On March 1, the company repurchases 5,000 shares of previously issued $\$ 1$
Cigna Corporation discloses the following footnote to its $10-\mathrm{K}$ report.What restatements has Cigna made to its balance sheet as a result of the stock split? On April 25, 2007, the
Use the following data to reconcile the 2008 retained earnings for Bamber Company (that is, explain the change in retained earnings during the year). Total retained earnings, December 31, 2007 .....
NCR Corporation discloses the following in notes to its $200710-\mathrm{K}$ report.a. Describe the difference between a spin-off and a split-off.b. What effects did NCR's spin-off of Teradata have
Viacom, Inc., reports the following footnote in its $200510-\mathrm{K}$.a. Describe the accounting for a split-off.b. How will the proposed split-off affect the number of Viacom shares
IMS IIeallth. Inc., reports the following footnote to its $200310-\mathrm{K}$.a. Describe the accounting for a split-off.b. Describe the circumstances that allowed IMS to recognize a gain on this
Jet Blue Airways Corporation reports the following footnote to its $200510-\mathrm{K}$.a. Describe the effects on JetBlue's balance sheet if the convertible bonds are converted.$b$. Would the
Lipe Company reports the following transactions relating to its stock accounts in the current year.Use the financial statement effects template to indicate the effects from each of these
McNichols Corp. reports the following transactions relating to its stock accounts in the current year.Use the financial statement effects template to indicate the effects from each of these
Following is the stockholders' equity section from the Camplell Soup Company balance sheet.Campbell Soup Company also reports the following statement of stockholders' equity.a. Show the computation,
Moser Company began business on March 1, 2007. At that time, it issued 20,000 shares of $\$ 60$ par value, $7 \%$ cumulative preferred stock and 100,000 shares of $\$ 5$ par value common stock.
Following is the stockholders' equity section from Altria's 2007 balance sheet.a. Show the computation to derive the $\$ 935$ million for common stock.$b$. At what average price has Altria issued
Skinner Company began business on June 30, 2007. At that time, it issued 18,000 shares of $\$ 50$ par value, $6 \%$ cumulative preferred stock and 90,000 shares of $\$ 10$ par value common
Chaney Company has outstanding 25,000 shares of $\$ 10$ par value common stock. It also has $\$ 405,000$ of retained earnings. Near the current year-end, the company declares and pays a cash
The stockholders' equity of Pagach Company at December 31, 2008, appears below.During 2009 , the following transactions occurred:May 12 Declared and issued a $7 \%$ stock dividend; the common stock
The stockholders' equity of Kinney Company at December 31, 2008, is shown below.The following transactions, among others, occurred during 2009:a. Use the financial statement effects template to
Following is the stockholders' equity section of the 2007 Caterpillar. Inc., balance sheet.a. How many shares of Caterpillar common stock are outstanding at year-end 2007?b. What does the phrase "at
\\ Corning. Inc., reports the following stockholders' equity information in its $10-\mathrm{K}$ report.}In 2002, Corning issued 5.75 million shares of $7.00 \%$ Series C Mandatory Convertible
Following is the stockholders' equity and minority interest sections of the 2007 Merck \& Co., Inc., balance sheet.a. Show the computation of the $\$ 29.8$ million in the common stock
The stockholders' equity section of Gupta Company at December 31, 2008, follows:During 2009, the following transactions occurred:\section*{Required}a. Use the financial statement effects template to
The stockholders' equity of Sougiannis Company at December 31, 2008, follows:The following transactions, among others, occurred during the following year:\section*{Required}a. Use the financial
\\ The stockholders' equity of Verrecchia Company at December 31, 2008, follows:\section*{Required}a. Use the financial statement effects template to indicate the effects of each transaction.b.
Following is the stockholders' equity of Dennis Corporation at December 31, 2008:The following transactions, among others, occurred during 2009:\section*{Required}Use the financial statement effects
Following is the shareholders' equity section of the 2008 balance sheet for Procter & Gamble Company and its statement of shareholders' equity.\section*{Required}a. What does the term convertible
Following is the stockholders' equity section of Fortune Brands balance sheet and its statement of stockholders' equity.\section*{Required}a. Explain the " $\$ 2.67$ " component of the convertible
Alloy, Inc., reports the following footnote related to its convertible debentures in its $200710-\mathrm{K}$ ( $\$$ thousands).In August 2003, Alloy completed the issuance of $\$ 69,300$ of 20
Weaver Industries implements a new share-based compensation plan in 2009. Under the plan, the company's CEO and CFO each will receive non-qualified stock options to purchase 100,000 , no par shares.
Intel Corporation reported the following in its $200810-\mathrm{K}$ report.Share-Based Compensation Effective January 1, 2006, we adopted the provisions of SFAS No. 123(R) . . . Share-based
Host Hotels \& Resorts, Inc., reported the following information in its 2008 10-K related to its restricted stock plan.Restricted Stock During 2008, 2007 and 2006, we recorded compensation
When convertible debt is issued, the conversion option is not separately recorded on the balance sheet, unless it can be detached and sold separately from the debt security. Since many conversion
What are the components of pension expense that are reported in the income statement?
What effect would consolidating SPEs have on both accounting for SPEs and the balance sheets of companies that sponsor them?

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