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financial statement analysis

Financial Statement Analysis And Valuation 5th Edition Peter D. Easton, Mary Lea McAnally, Gregory A. Sommers - Solutions

Interpreting Equity Method Investment Footnotes BHP Billiton Limited discovers, acquires, develops, and markets natural resources worldwide. Headquartered in Melbourne Australia, the company explores for, develops, produces, and markets oil and gas in the Gulf of Mexico, Western Australia, and
Allocating Purchase Price Including Intangibles Deutsche Telekom AG, headquartered in Bonn, Germany, is the largest telecommunications company in Europe. The company uses IFRS to prepare its financial statements. Assume that during 2014, Deutsche Telekom acquired a controlling interest in Hellenic
Interpreting Equity Method Investment Footnotes Carrefour S.A. is a French multinational retailer headquartered near Paris. The company uses IFRS for its financial reports and reports the following details about its investments in associates, which are accounted for using the equity method.€
Reformulating RNOA for Acquisition Gross Profit Effects Windstream Corporation, a communications and technology solutions company, acquired PAETEC Holding Corporation in 2011. The merger was designed to increase Windstream’s nationwide network with a more substantial fiber footprint. Use the
Analyzing and Interpreting Disclosures on Consolidations Snap-on Incorporated consists of two business units: the manufacturing company (parent corporation)and a wholly-owned finance subsidiary. These two units are consolidated in Snap-on’s 10-K report. Following is a supplemental disclosure
Make the following assumptions about those data.• All assets are operating assets.• All current liabilities are operating liabilities.• Non-current liabilities are loans that bear interest at 8%.• EMI (Equity Method Investments) investees’ tax rate is 35%.The following information is
Reformulating Financial Analysis for Equity Method Investments Refer to the financial information for the equity method investments of Cummins in
Analyzing and Interpreting Disclosures on Equity Method Investments General Mills Inc. invests in a number of joint ventures to manufacture and distribute its food products, as discussed in the following footnote to its fiscal year 2016 10-K report.INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES We
Reporting and Analyzing Derivatives Johnson & Johnson reports the following information derived from the schedule of Accumulated Other Comprehensive Income and the Consolidated Statements of Comprehensive Income in its 2016 10-K report.$ millions Foreign Currency Translation Gains/(Losses)on
Hedging and Use of Derivatives Ford Motor Company reports the following in its Form 10-K for fiscal 2015.Commodity price risk is the possibility that our financial results could be better or worse than planned because of changes in the prices of commodities used in the production of motor vehicles,
Hedging and Use of Derivatives Intel reports the following in its Form 10-K for fiscal 2015.Currency Exchange Rates In general, we economically hedge currency risks of non-U.S.-dollar-denominated investments in debt instruments and loans receivable with currency forward contracts or currency
Foreign Translation Adjustment and Derivatives General Mills reported the following statement of comprehensive income in its fiscal 2016 Form 10-K.For 12 Months Ended ($ millions) 29-May-16 31-May-15 25-May-14 Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,736.8
Constructing the Consolidated Balance Sheet at Acquisition Easton Company acquires 100 percent of the outstanding voting shares of Harris Company. To obtain these shares, Easton pays $420,000 in cash and issues 5,000 of its $10 par value common stock. On this date, Easton’s stock has a fair value
Allocating Purchase Price Adobe Systems Inc. reports the following footnote to its 10-K report.Fotolia On ????anuary ????????, ????????????5, we completed our acquisition of privately held Fotolia, a leading marketplace for royalty-free photos, images, graphics and ????D videos. During the first
Estimating Goodwill Impairment On January 1 of the current year, Engel Company purchases 100% of Ball Company for $8.4 million. At the time of acquisition, the fair value of Ball’s tangible net assets (excluding goodwill) is $8.1 million.Engel ascribes the excess of $300,000 to goodwill. Assume
Assessing Financial Statement Effects from a Subsidiary Stock Issuance Sykora Company owns 80% of Walton Company. Information reported by Sykora and Walton as of the current year end follows.Sykora Company Shares owned of ????alton. . . . . . . . . . . . . . . 8????,????????????????ook value of
Constructing the Consolidated Balance Sheet at Acquisition Winston Company purchased all of Marcus Company’s common stock for $600,000 cash on January 1, at which time the separate balance sheets of the two corporations appeared as follows.Winston Company Marcus Company Consolidating Adjustments
Constructing the Consolidated Balance Sheet at Acquisition On January 1 of the current year, Liu Company purchased all of the common shares of Reed Company for $380,000 cash. Balance sheets of the two firms immediately after the acquisition follow.Liu Company Reed Company Consolidating Adjustments
Interpreting Equity Method Investment Footnotes AT&T reports the following footnote to its 2015 10-K report.Equity Method Investments Investments in partnerships, joint ventures and less than majority-owned subsidiaries in which we have significant influence are accounted for under the equity
Analyzing and Interpreting Disclosures on Equity Method Investments Cummins Inc. reports investments in affiliated companies, consisting mainly of investments in nine manufacturing joint ventures. Cummins reports those investments on its balance sheet at $958 million and provides the following
Interpreting Equity Method Investment Footnotes Ford Motor Company includes the following table in its 2015 Form 10-K. The table reports the ownership percentages and carrying value of equity method investments (in millions, except percentages).Automotive Sector Ownership Percentage Investment
Assessing Financial Statement Effects Investments On January 1, 2018, Ball Corporation purchased shares of Leftwich Company common stock.a. Assume that the stock acquired by Ball represents 15% of Leftwich’s voting stock and that Ball has no influence over Leftwich’s business decisions. Use the
Assessing Financial Statement Effects of Equity Method Securities Use the financial statement effects template (with amounts and accounts) to record the following transactions involving investments in marketable securities accounted for using the equity method.a. Madison Co. purchases 10,500 common
Assessing Financial Statement Effects of Equity Method Securities Use the financial statement effects template (with amounts and accounts) to record the following transactions involving investments in marketable securities accounted for using the equity method.a. Purchased 12,000 common shares of
Interpreting Footnotes on Security Investments Cisco Systems Inc. reports the following information derived from its 2016 10-K report. (????????????e???? Cisco’s 2016 disclosures are consistent with the former accounting rules for marketable equity securities. See the Business Insight box on page
Marketable Debt Securities Use the financial statement effects template to record the accounts and amounts for the following four transactions involving investments in marketable debt securities classified as available-for-sale securities.Assume that these transactions occur in 2016 (before the new
Assessing Financial Statement Effects of Marketable Equity Securities Use the financial statement effects template to record the accounts and amounts for the following four transactions involving investments in marketable equity securities. Assume that these transactions occur in 2018.a. Abney
Assessing Financial Statement Effects of Marketable Equity Securities Use the financial statement effects template to record the following four transactions involving investments in marketable equity securities. Assume that these transactions occur in 2018.a. Purchased 18,000 common shares of Baez
Interpreting Disclosure Related to Spin-Off Johnson Controls reports the following in its Form 8-K dated September 9, 2016.Johnson Controls’ board of directors has approved the previously announced spin-off of its global automotive seating and interiors business. The transaction will result in
Interpreting a Proposed Split-Off Disclosure On October 19, 2015, the following was reported in an article at StreetInsider.com.General Electric commenced an offer to exchange GE common stock for common stock of Synchrony Financial presently owned by GE. This exchange offer is in connection with
Interpreting a Spin-Off Disclosure On October 11, 2016, Forbes magazine (at forbes.com) reported the following.ConAgra Foods, Inc., announced that the separation of its frozen potato portfolio, Lamb Weston Holdings, Inc. (NYSE: “LW”), will be effectuated on November 9, 2016, the distribution
Assigning Purchase Price in Acquisitions Jasper Company acquired 80% of Fey Company at the beginning of the current year. Jasper paid $150,000 more than the book value of Fey’s stockholders’ equity and determined that this excess purchase price related to intangible assets. How does the
Computing Consolidated Net Income Bedford Company purchased a 90% interest in Midway Company on January 1 of the current year, and the purchase price reflected 90% of Midway’s book value of equity. Bedford Company had $400,000 net income for the current year before recognizing its share of Midway
Computing Consolidating Adjustments and Noncontrolling Interest Patterson Company purchases 80% of Kensington Company’s common stock for $400,000 cash when Kensington Company has $200,000 of common stock and $300,000 of retained earnings. If a consolidated balance sheet is prepared immediately
Interpreting Disclosures on Investments in Affiliates Merck’s 10-K report include the following footnote disclosure.Investments in affiliates accounted for using the equity method, . . . totaled $702 million at December 31, 2015. These amounts are reported in Other assets.a. At what amount are
Computing Income for Equity Method Investments Kross Company purchases an equity investment in Penno Company at a purchase price of $2.5 million, representing 40% of the book value of Penno. During the current year, Penno reports net income of$300,000 and pays cash dividends of $100,000. At the end
Analyzing and Interpreting Equity Method Investments Concord Company purchases an investment in Bloomingdale Company at a purchase price of $2 million cash, representing 30% of the book value of Bloomingdale. During the year, Bloomingdale reports net income of $300,000 and pays cash dividends of
Marketable Debt Securities In 2017, Jensen Inc. invests excess cash of $4,000,000 in marketable debt securities issued by the U.S. Treasury and several Fortune 100 firms. At the end of the quarter, the fair value of the securities had increased to $4,106,003. Explain how Jensen would report the
Analyzing Derivatives and Hedging For each of the following, indicate whether the hedge would be classified as a fair value hedge or a cash flow hedge.a. Morningstar locks in a price on a forward contract to buy soybeans over the next 12 months.b. General Motors enters into a foreign currency
This information reports activity related to Amgen’s cash flow hedges.a. Explain how this type of hedging works. Provide an example of how Amgen might use this type of hedging strategy.b. How did the hedges affect net income for 2015?c. If these same hedges had instead been fair value hedges,
Analyzing Derivatives and Hedging Refer to the information for Amgen in
Interpreting Disclosures of Investment Securities Amgen Inc. reports the following disclosure relating to its December 31, 2015, accumulated other comprehensive income.$ millions Foreign Currency Translation Cash Flow Hedges Available-for-Sale Securities Other AOCI Balance as of December 31, 2014 .
Accounting for Marketable Equity Securities Assume that Bava Company purchases 23,000 common shares of Jones Company for $12 cash per share.During the year, Bava receives a cash dividend of $1.30 per common share from Jones, and the year-end market price of Jones common stock is $13 per share. How
How does a weakening $US affect the consolidated balance sheet of a company with foreign subsidiaries?Q9-12.BWhat is the difference between a spin-off and a split-off? Under what circumstances can either result in the recognition of a gain in the income statement?
What are some limitations of consolidated financial statements?
What is the underlying objective of consolidated financial statements?Q9-8.AWhat is a derivative? How do companies use them to hedge risk?Q9-9.AFor accounting purposes, what are the two types of hedges? How are unrealized derivative gains and losses treated under each accounting method?
What accounting method is used when a stock investment represents more than 50% of the investee company’s voting stock and allows the investor company to “control” the investee company? Explain.
On January 1 of the current year, Yetman Company purchases 40% of the common stock of Livnat Company for $500,000 cash. This 40% ownership allows Yetman to exert significant influence over Livnat.During the year, Livnat reports $160,000 of net income and pays $120,000 in cash dividends. At
What does significant influence imply regarding intercorporate investments? Describe the accounting procedures used for such investments.
Where are unrealized gains and losses related to marketable equity securities reported in the financial statements?
What is an unrealized gain (loss)? Explain.
What is a passive investment? Why do companies have passive investment?
Analyzing Stockholders’ Equity Accounts and Transactions Potash Corporation—the world’s largest potash producer—is a Canadian corporation based in Saskatoon, Saskatchewan. The following is information taken from its financial statements reported in $US but prepared in accordance with
Calculating and Recording Cash and Stock Dividends Husky Energy Inc. declared a dividend of CDN $0.30 per share to shareholders of record at the close of business on 08/28/15 and payable on 10/01/15. The dividend will be paid in cash; however shareholders can elect to receive stock dividends in the
Interpreting Disclosures on Treasury Stock and Stock-based Compensation Rio Tinto is listed on stock exchanges in both the UK and Australia. Following is its 2015 statement of stockholders’ equity.Year ended 31 December 2015(in $US millions)Share Capital Share Premium Other Reserves Retained
Analyzing and Computing Average Issue Price and Treasury Stock Transactions Telefónica, S.A. is a Spanish broadband and telecommunications provider with operations in Europe, Latin America, North America and Asia. The company’s statement of changes in equity reported the following.In millions
Analyzing and Interpreting Equity Accounts and Comprehensive Income Henkel AG & Co. is an international, fast-moving consumer goods (FMCG) company headquartered in Düsseldorf, Germany. Following is its shareholders’ equity statement, prepared using IFRS, from its 2015 annual report.Issued
Analyzing Convertible Preferred Stock Disclosure In a press release dated April 22, 2015, HealthSouth provided notice of conversion of their 6.5% Series A Convertible Preferred Stock, as follows.HealthSouth Corporation (NYSE: HLS) today announced it is providing notice to the registered holders of
Identifying and Analyzing Financial Statement Effects of Share-Based Compensation Weaver Industries implements a new share-based compensation plan in 2014. Under the plan, the company’s CEO and CFO each will receive non-qualified stock options to purchase 100,000, no par shares.The options vest
Interpreting Disclosure on Convertible Preferred Securities The 2008 annual report of Northrop Grumman Corporation includes the following disclosure in its shareholders’ equity footnote.Conversion of Preferred Stock On February 20, 2008, the company’s board of directors approved the redemption
Interpreting Footnote Disclosure on Convertible Debentures Alloy Inc. reports the following footnote related to its convertible debentures in its 2007 10-K ($ thousands).????n August 2003, Alloy completed the issuance of ????69,300 of 20-????ear 5.375% Senior Convertible Debentures due August 1,
Analyzing and Interpreting Equity Accounts and Accumulated Other Comprehensive Income Following is the stockholders’ equity section of Beam Inc. balance sheet and its statement of stockholders’equity.December 31 (In millions, except per share amounts) 2012 Stockholders’ equity$2.67
Analyzing and Interpreting Equity Accounts and Comprehensive Income Following is the shareholders’ equity section of the 2016 balance sheet for Procter & Gamble Company and its statement of shareholders’ equity.June 30 (In millions, expect per share amounts) 2016 Shareholders’ Equity
Identifying and Analyzing Financial Statement Effects of Stock Transactions Following is the stockholders’ equity of Herrera Corporation at December 31, 2016.8% preferred stock, $50 par value, 10,000 shares authorized;8,000 shares issued and outstanding. . . . . . . . . . . . . . . . . . . . . .
????????-5????. Identifying and ????naly????ing ????inancial ????tatement ????ffects of ????tock ????ransactions The stockholders’ equity of Verrecchia Company at December 31, 2016, follows.Common stock, $5 par value, 500,000 shares authorized;350,000 shares issued and outstanding. . . . . . . .
????????-5????. Identifying and ????naly????ing ????inancial ????tatement ????ffects of ????tock-????ased Compensation The stockholders’ equity of Fowler Company at December 31, 2016, follows.7% Preferred stock, $100 par value, 20,000 shares authorized;4,000 shares issued and outstanding. . . . .
Analyzing Stockholders’ Equity Including AOCI and Convertible Securities Under Armour reported the following stockholders’ equity section of the balance sheet for the fiscal year ended December 31, 2015.Stockholders’ Equity ($ 000s) 2015 2014 Class A Common Stock, ????????????????????????????
Identifying and Analyzing Financial Statement Effects of Stock Transactions The stockholders’ equity section of Medina Company at December 31, 2016, follows.???????? preferred stock, ???????????? par value, ????????,???????????? shares authori????ed????????,???????????? shares issued and
Analyzing and Computing Issue Price, Treasury Stock Cost, and Shares Outstanding Following is the stockholders’ equity section of the 2015 Merck & Co. Inc. balance sheet.Stockholders’ Equity ($ millions) 2015 Common stock, $0.50 par value; Authorized—6,500,000,000
Analyzing Convertible Preferred Stock Xerox Corp. reports the following stockholders’ equity information in its 10-K report.Shareholders’ Equity(in millions, except par value)December 31 2015 2014 Series A convertible preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Analyzing and Computing Issue Price, Treasury Stock Cost, and Shares Outstanding Following is the stockholders’ equity section of the 2015 Caterpillar Inc. balance sheet.Stockholders’ Equity ($ millions) 2015 2014 2013 Common stock of $1.00 par; Authorized shares: 2,000,000,000;Issued shares
Identifying, Analyzing and Explaining the Effects of a Stock Split On March 1 of the current year, Lackey Company has 500,000 shares of $20 par value common stock that are issued and outstanding. Its balance sheet shows the following account balances relating to common stock.Common stock. . . . . .
Identifying and Analyzing Financial Statement Effects of Cash and Stock Dividends The stockholders’ equity of Hammel Company at December 31, 2016, is shown below.5% preferred stock, $100 par value, 10,000 shares authorized;6,000 shares issued and outstanding. . . . . . . . . . . . . . . . . . . .
Identifying and Analyzing Financial Statement Effects of Cash and Stock Dividends The stockholders’ equity of Rondon Company at December 31, 2016, appears below.Common stock, $10 par value, 200,000 shares authorized;80,000 shares issued and outstanding. . . . . . . . . . . . . . . . . . . . . . .
Identifying and Analyzing Financial Statement Effects of Cash and Stock Dividends Baez Company has outstanding 25,000 shares of $10 par value common stock. It also has $514,000 of retained earnings. Near the current year-end, the company declares and pays a cash dividend of $1.80 per share and
Analyzing Cash Dividends on Preferred and Common Stock Warren Company began business on June 30, 2015. At that time, it issued 25,000 shares of $40 par value, 8% cumulative preferred stock and 100,000 shares of $5 par value common stock. Through the end of 2017, there has been no change in the
Analyzing and Computing Issue Price, Treasury Stock Cost, and Shares Outstanding Following is the stockholders’ equity section from Altria Group Inc.’s 2015 balance sheet.December 31 ($ millions, except per share amounts) 2015 Common stock, par value $0.331/3per share (2,805,961,317 shares
Return on Equity in Presence of Large Treasury Stock Balance NJ Simpson Inc. reported the following equity accounts in its 2017 balance sheet. Stock prices for the past three year-ends of 2017, 2016, and 2015 are: $244.80, $196.96, and $136.34, respectively.Shareholders’ Equity ($ millions,
Analyzing Cash Dividends on Preferred and Common Stock Everett Company has outstanding 30,000 shares of $50 par value, 6% preferred stock and 70,000 shares of$1 par value common stock. During its first three years in business, it declared and paid no cash dividends in the first year, $310,000 in
Analyzing Stock-Based Compensation Howell Company began business on March 1, 2017. At that time, it granted 250,000 options, with a strike price of $5, to computer engineers in lieu of signing bonuses. The fair value of each option was estimated at $1 and the options vest over four years.a. What
Analyzing and Computing Average Issue Price and Treasury Stock Cost Following is the stockholders’ equity section from the Campbell Soup Company balance sheet. (Note:Campbell’s uses shareowners’ equity in lieu of the more common title of stockholders’ equity.)Shareowners’ Equity
Identifying Various Equity Transactions Perry Corp. reports the following transactions relating to its stock accounts in the current year.Feb. 3 Issued 40,000 shares of $5 par value common stock at $27 cash per share.Feb. 27 Issued 9,000 shares of $50 par value, 8% preferred stock at $88 cash per
Identifying and Analyzing Financial Statement Effects of Stock Transactions Orson Company reports the following transactions relating to its stock accounts in the current year.Mar. 2 Issued 10,000 shares of $1 par value common stock at $30 cash per share.Apr. 14 Issued 15,000 shares of $100 par
Analyzing Financial Statement Effects of Convertible Securities JetBlue Airways Corporation reports the following footnote to its 2015 10-K.In June 2009, we completed a public offering for an aggregate principal amount of $115 million of 6.75% Series A convertible debentures due 2039, or the Series
Interpreting Comprehensive Income and AOCI Indicate whether each of the following statements is true or false. If false, indicate how to correct the statement.a. The amount reported for accumulated other comprehensive income (AOCI) on the balance sheet must be a positive amount consistent with all
Determining Effects of Stock Splits Oracle Corp has had the following stock splits since its inception.Effective Date ????plit ????mount October 12, 2000 . . . . . . . . . 2 for 1 January 18, 2000 . . . . . . . . . 2 for 1 February 26, 1999 . . . . . . . . 3 for 2 August 15, 1997 . . . . . . . . .
Calculating and Recording Cash Dividends On January 27, 2016, McDonald’s Board of Directors declared a quarterly cash dividend of $0.89 per share of common stock payable on March 15, 2016, to shareholders of record at the close of business on March 1, 2016. Assume that there were 906 million
Calculating and Interpreting EPS Information Wells Fargo reports the following information in its 2015 Form 10-K.????n millions 2015 2014 Wells Fargo net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,894 $23,057 Preferred stock dividends . . . . . . .
Reconciling Retained Earnings Use the following data to reconcile the 2017 retained earnings for Emerald Company (that is, explain the change in retained earnings during the year).Total retained earnings, December 31, 2016 . . . . $537,000 Stock dividends declared and paid in 2017. . . . . 46,000
Determining Cash Dividends to Preferred and Common Shareholders Hobson Company has outstanding 40,000 shares of $50 par value, 6% cumulative preferred stock and 100,000 shares of $10 par value common stock. The company declares and pays cash dividends amounting to $280,000.a. If there are no
Identifying, Analyzing and Explaining the Effects of a Stock Split On September 1, Weiss Company has 300,000 shares of $9 par value ($148 market value) common stock that are issued and outstanding. Its balance sheet on that date shows the following account balances relating to its common
Estimating Stock-Based Compensation Expense Rainier Corp. has several types of stock-based compensation plans including a stock purchase plan that allows employees to buy shares at a 15% discount. During 2016, employees purchased 25,000 shares under this plan. Also, the company granted 20,000 stock
Equity Attributable to Company Stockholders Boeing Company reported the following items on its 2015 form 10-K. Which equity number should be used to calculate return on equity for 2015 and for 2014?Shareholders’ ????quity ($ millions, except par and shares) 201???? 2014 Common stock, par value
Distinguishing Between Common Stock and Additional Paid-in Capital Following is the 2016 stockholders’ equity section from the Cisco Systems Inc. balance sheet.Shareholders’ ????quity (in millions, except par value) July 2016 Preferred stock, no par value: 5 shares authorized; none issued and
Understanding EPS Calculations On its Form 10-K for the year ended December 31, 2015, Bank of America Corp. reported information related to basic earnings per share. Fill in the missing information.$ millions, except per share amounts 201???? 2014 2013 Net income . . . . . . . . . . . . . . . . . .
Analyzing and Identifying Financial Statement Effects of Stock Issuances During the current year, Bryant Company, (a) issues 8,000 shares of $50 par value preferred stock at $84 cash per share and (b) issues 19,000 shares of $1 par value common stock at $10 cash per share. Indicate the financial
Describe the accounting for a convertible bond. Can the conversion ever result in the recognition of a gain in the income statement?
What are three common forms of stock-based compensation and why do companies use such forms of compensation?
What items are typically reported under the stockholders’ equity category of accumulated other comprehensive income (AOCI)?
What information is reported in a statement of stockholders’ equity?

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