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financial statement analysis

International Financial Statement Analysis 3rd Edition Thomas R. Robinson, Elaine Henry, Wendy L. Pirie - Solutions

Based on Ohalin’s estimates, the amount of the joint venture’s 31 December 2010 total assets (in $ millions) that will be included on Supreme Healthcare’s consolidated fi nancial statements will be closest to:A . $0.B . $750.C . $1,500.
Based on Ohalin’s estimates, the amount of joint venture net income included on the consolidated fi nancial statements of each venturer will most likely be:A . higher for BetterCare.B . higher for Supreme Healthcare.C . the same for both BetterCare and Supreme Healthcare.
Based on Ohalin’s estimates, the amount of joint venture revenue (in $ millions) included on BetterCare’s consolidated 2010 fi nancial statements should be closest to:A . $0.B . $715.C . $1,430.
Compared to accounting principles currently in use, the pooling method BetterCare used for its Statewide Medical acquisition has most likely caused its reported:A . revenue to be higher.B . total equity to be lower.C . total assets to be higher.
Confabulated’s special purpose entity is most likely to be:A . held off -balance sheet.B . consolidated on Confabulated’s fi nancial statements.C . consolidated on Confabulated’s fi nancial statements only if it is a “qualifying SPE.”
Confabulated’s reported interest income would be lower if the cost was the same but the par value (in € thousands) of:A . Bugle was €28,000.B . Cathay was €37,000.C . Dumas was €55,000.
Compared to Confabulated’s reported earnings before taxes in 2009, if Bugle had been classifi ed as a held for trading security, the earnings before taxes (in € thousands) would have been:A . the same.B . €1,000 lower.C . €3,000 higher.
Compared to Confabulated’s reported interest income in 2009, if Dumas had been classifi ed as available-for-sale, the interest income would have been:A . lower.B . the same.C . higher.
Th e balance sheet carrying value of Confabulated’s investment portfolio at 31 December 2009 would have been higher if which of the securities had been reclassifi ed as a held for trading security?A . Bugle.B . Cathay.C . Dumas.
Th e balance sheet carrying value of Confabulated’s investment portfolio (in € thousands)at 31 December 2009 is closest to:A . 112,000.B . 115,000.C . 118,000.
Based on Gelblum’s estimates, Zimt’s net income in 2010 will most likely be:A . highest if Zimt is deemed to have control of Oxbow.B . highest if Zimt is deemed to have signifi cant infl uence over Oxbow.C . independent of the accounting method used for the investment in Oxbow.
Based on Gelblum’s estimates, if Zimt is deemed to have control over Oxbow, its 2010 consolidated sales (in € millions) will be closest to:A . €1,700.B . €2,375.C . €3,050.
Based on Gelblum’s estimates, if Zimt is deemed to have joint control of Oxbow, and Zimt uses the proportionate consolidation method, its 31 December 2010 total liabilities(in € millions) will most likely be closest to:A . €686.B . €975.C . €1,263.
Based on Gelblum’s estimates, if Zimt is deemed to have signifi cant infl uence over Oxbow, its 2010 net income (in € millions) would be closest to:A . €75.B . €109.C . €143.
At 31 December 2010, Zimt’s total assets balance would most likely be:A . highest if Zimt is deemed to have control of Oxbow.B . highest if Zimt is deemed to have signifi cant infl uence over Oxbow.C . unaff ected by the accounting method used for the investment in Oxbow.
In 2009, Zimt’s earnings before taxes includes a contribution (in € millions) from its investment in Oxbow Limited closest to:A . (€0.6) million.B . (€1.0) million.C . €2.0 million.
Compared to Cinnamon’s operating margin in 2009, if it is deemed to have control of Cambridge, its operating margin in 2010 will most likely be:A . lower.B . higher.C . the same.
At 31 December 2010, assuming control and recognition of goodwill, Cinnamon’s reported debt to equity ratio will most likely be highest if it accounts for its investment in Cambridge using the:A . equity method.B . full goodwill method.C . partial goodwill method.
In 2010, Cinnamon’s net profi t margin would be highest if:A . it is deemed to have control of Cambridge.B . it had not increased its stake in Cambridge.C . it is deemed to have signifi cant infl uence over Cambridge.
At 31 December 2010, Cinnamon’s shareholders’ equity on its balance sheet would most likely be:A . highest if Cinnamon is deemed to have control of Cambridge.B . independent of the accounting method used for the investment in Cambridge.C . highest if Cinnamon is deemed to have signifi cant infl
In 2010, if Cinnamon is deemed to have control over Cambridge, it will most likely account for its investment in Cambridge using:A . the equity method.B . the acquisition method.C . proportionate consolidation.
In 2009, Cinnamon’s earnings before taxes includes a contribution (in £ millions) from its investment in Cambridge Processing that is closest to:A . £3.8.B . £5.8.C . £7.6.
Compared to the assumptions Stereo Warehouse used to value stock options in 2008, earnings in 2009 were most favorably aff ected by the change in the:A . expected life.B . risk-free rate.C . dividend yield.
Compared to the reported 2009 fi nancial statements, if Stereo Warehouse had used the 2007 expected volatility assumption to value its employee stock options, it would have most likely reported higher:A . net income.B . compensation expense.C . deferred compensation liability.
Compared to the pension assumptions Stereo Warehouse used in 2008, which of the following pairs of assumptions used in 2009 is most likely internally inconsistent?A . Estimated future salary increases, infl ation B . Discount rate, estimated future salary increases C . Expected long-term rate of
Compared to the assumptions Stereo Warehouse used to compute its periodic pension cost in 2008, earnings in 2009 were most favorably aff ected by the change in the:A . discount rate.B . estimated future salary increases.C . expected long-term rate of return on plan assets.
Compared to the reported 2009 fi nancial statements, if Stereo Warehouse had used the same discount rate as it used in 2007, it would have most likely reported lower:A . net income.B . total liabilities.C . cash fl ow from operating activities.
Compared to the 2009 reported fi nancial statements, if Stereo Warehouse had used the same expected long-term rate of return on plan assets assumption in 2009 as it used in 2007, its year-end 2009 pension obligation would most likely have been:A . lower.B . higher.C . the same.
Compared to 2009 net income as reported, if XYZ had used the same expected volatility assumption for its 2009 option grants that it had used in 2008, its 2009 net income would have been:A . lower.B . higher.C . the same
Under IFRS, the amount of periodic pension cost that would be reported in OCI is closest to:A . 20.B . 490.C . 1,020.
Assuming the company chooses not to immediately recognise the actuarial loss and assuming there is no amortisation of past service costs or actuarial gains and losses, the amount of periodic pension cost that would be reported in P&L under US GAAP is closest to:A . 20.B . 59.C . 530.
Th e amount of periodic pension cost that would be reported in P&L under IFRS is closest to:A . 20.B . 530.C . 1,020.
Th e total periodic pension cost is closest to:A . 320.B . 1,020.C . 1,320.
Th e retirement benefi ts paid during the year were closest to:A . 280.B . 3,000.C . 4,000.
An adjustment to Kensington’s statement of cash fl ows to reclassify the company’s excess contribution for 2010 would most likely entail reclassifying £210 million (excluding income tax eff ects) as an outfl ow related to:A . investing activities rather than operating activities.B . fi nancing
Th e relationship between the periodic pension cost and the plan’s funded status is best expressed in which of the following?A . Periodic pension cost of –£483 = Ending funded status of –£4,774 – Employer contributions of £693 – Beginning funded status of –£4,984.B . Periodic
Which component of Kensington’s periodic pension cost would be shown in OCI rather than P&L?A . Service cost B . Net interest (income) expense C . Remeasurements
Which of the following is closest to the actual rate of return on beginning plan assets and the rate of return on beginning plan assets that is included in the interest income/expense calculation?A . Th e actual rate of return was 5.56 percent, and the rate included in interest income/expense was
For the year 2010, the remeasurement component of Kensington’s periodic pension cost represents:A . the change in the net pension obligation.B . actuarial gains and losses on the pension obligation.C . actual return on plan assets minus the amount of return on plan assets included in the net
For the year 2010, the net interest expense of £273 represents the interest cost on the:A . ending benefi t obligation.B . beginning benefi t obligation.C . beginning net pension obligation.
At year-end 2010, £28,879 million represents:A . the funded status of the plan.B . the defi ned benefi t obligation.C . the fair value of the plan’s assets.
Over the three years presented, changes in the valuation allowance for deferred tax assets were most likely indicative of:A . decreased prospect for future profi tability.B . increased prospects for future profi tability.C . assets being carried at a higher value than their tax base.
Th e $357,000 adjustment in 2007 most likely resulted in:A . an increase in deferred tax assets.B . an increase in deferred tax liabilities.C . no change to deferred tax assets and liabilities.
In 2007, the company’s net income (loss) was closest to:A . ($217,000).B . ($329,000).C . ($556,000).
Compared to the provision for income taxes in 2007, the company’s cash tax payments were:A . lower.B . higher.C . the same.
If the valuation allowance had been the same in 2007 as it was in 2006, the company would have reported $115 higher :A . net income.B . deferred tax assets.C . income tax expense.
Jordan’s response about the impact of Alpha’s decision to classify its lease as an operating lease instead of finance lease is most likely incorrect with respect to:A. net income.B. solvency and activity ratios.C. cash flow from operating activities.
Jordan’s response about the ratio impact of Alpha’s decision to capitalize interest costs is most likely correct with respect to the:A. interest coverage ratio.B. fixed asset turnover ratio.C. interest coverage and fixed asset turnover ratios.
With respect to Statement 4 and Exhibit A, if AMRC had used its old classification method for its leases instead of its new classification method, the most likely eff ect on its 2009 ratios would be a:A. higher net profit margin.B. higher fixed asset turnover.C. higher total liabilities-to-total
With respect to Statement 4, if AMRC had used its old classification method for its leases instead of its new classification method, its 2009 total asset turnover ratio would most likely be:A. lower.B. higher.C. the same.
Based on Exhibits A and B, the best estimate of the average remaining useful life of the company’s plant and equipment at the end of 2009 is:A. 20.75 years.B. 24.25 years.C. 30.00 years.
With respect to Statement 3, what is the most likely eff ect of the impairment loss?A. Net income in years prior to 2009 was likely understated.B. Net profit margins in years after 2009 will likely exceed the 2009 net profit margin.C. Cash flow from operating activities in 2009 was likely lower due
With respect to Statement 2, what would be the most likely eff ect in 2010 if AMRC were to switch to an accelerated depreciation method for both financial and tax reporting?A. Net profit margin would decrease.B. Total asset turnover would increase.C. Cash flow from operating activities would
With respect to Statement 1, which of the following is the most likely eff ect of management’s decision to expense rather than capitalize these expenditures?A. 2009 net profit margin is higher than if the expenditures had been capitalized.B. 2009 total asset turnover is lower than if the
A company is most likely to:A. use a fair value model for some investment property and a cost model for other investment property.B. change from the fair value model when transactions on comparable properties become less frequent.C. change from the fair value model when the company transfers
A financial analyst at BETTO, S.A. is analyzing the result of the sale of a vehicle for 85,000 Argentine pesos (ARP) on 31 December 2009. Th e analyst compiles the following information about the vehicle:Acquisition cost of the vehicle ARP 100,000 Acquisition date 1 January 2007 Estimated residual
An analyst is studying the impairment of the manufacturing equipment of WLP Corp., a U.K.-based corporation that follows IFRS. He gathers the following information about the equipment:Fair value £16,800,000 Costs to sell £800,000 Value in use £14,500,000 Net carrying amount £19,100,000 Th e
A financial analyst is analyzing the amortization of a product patent acquired by MAKETTI S.p.A., an Italian corporation. He gathers the following information about the patent:Acquisition cost €5,800,000 Acquisition date 1 January 2009 Patent expiration date 31 December 2015 Total plant capacity
An analyst in the finance department of BOOLDO, S.A., a French corporation, is computing the amortization of a customer list, an intangible asset, for the fiscal year ended 31 December 2009. She gathers the following information about the asset:Acquisition cost €2,300,000 Acquisition date 1
If MARIO uses the units-of-production method, the amount of depreciation expense (in UYP) on MARIO’s income statement related to the manufacturing equipment is closest to:A. 118,750.B. 168,750.C. 202,500.
If MARIO uses the straight-line method, the amount of depreciation expense on MARIO’s income statement related to the manufacturing equipment is closest to:A. 125,000.B. 150,000.C. 168,750.
Juan Martinez, CFO of VIRMIN, S.A., is selecting the depreciation method to use for a new machine. Th e machine has an expected useful life of six years. Production is expected to be relatively low initially but to increase over time. Th e method chosen for tax reporting must be the same as the
A financial analyst is studying the income statement eff ect of two alternative depreciation methods for a recently acquired piece of equipment. She gathers the following information about the equipment’s expected production life and use:Year 1 Year 2 Year 3 Year 4 Year 5 Total Units of
After reading the financial statements and footnotes of a company that follows IFRS, an analyst identified the following intangible assets:• product patent expiring in 40 years• copyright with no expiration date• goodwill acquired 2 years ago in a business combination Which of these assets is
BAURU, S.A., a Brazilian corporation, borrows capital from a local bank to finance the construction of its manufacturing plant. Th e loan has the following conditions:Borrowing date 1 January 2009 Amount borrowed 500 million Brazilian real (BRL)Annual interest rate 14 percent Term of the loan 3
JOOVI Inc. has recently purchased and installed a new machine for its manufacturing plant. Th e company incurred the following costs:Purchase price $12,980 Freight and insurance $1,200 Installation $700 Testing $100 Maintenance staff training costs $500 Th e total cost of the machine to be shown on
When developing forecasts, analysts should most likely :A . develop possibilities relying exclusively on the results of fi nancial analysis.B . use the results of fi nancial analysis, analysis of other information, and judgment.C . aim to develop extremely precise forecasts using the results of fi
A decomposition of ROE for Company A and Company B is as follows:Company A Company B FY15 FY14 FY15 FY14 ROE 26.46% 18.90% 26.33% 18.90%Tax burden 0.7 0.75 0.75 0.75 Interest burden 0.9 0.9 0.9 0.9 EBIT margin 7.00% 10.00% 13.00% 10.00%Asset turnover 1.5 1.4 1.5 1.4 Leverage 4 2 2 2 An analyst is
A decomposition of ROE for Integra SA is as follows:FY12 FY11 ROE 18.90% 18.90%Tax burden 0.70 0.75 Interest burden 0.90 0.90 EBIT margin 10.00% 10.00%Asset turnover 1.50 1.40 Leverage 2.00 2.00 Which of the following choices best describes reasonable conclusions an analyst might make based on this
An analyst compiles the following data for a company:FY13 FY14 FY15 ROE 19.8% 20.0% 22.0%Return on total assets 8.1% 8.0% 7.9%Total asset turnover 2.0 2.0 2.1 Based only on the information above, the most appropriate conclusion is that, over the period FY13 to FY15, the company’s:A . net profi t
Th e company’s total assets at year-end FY9 were GBP 3,500 million. Which of the following choices best describes reasonable conclusions an analyst might make about the company’s effi ciency?A . Comparing FY14 with FY10, the company’s effi ciency improved, as indicated by a total asset
An analyst observes the following data for two companies:Company A ($) Company B ($)Revenue 4,500 6,000 Net income 50 1,000 Current assets 40,000 60,000 Total assets 100,000 700,000 Current liabilities 10,000 50,000 Total debt 60,000 150,000 Shareholders’ equity 30,000 500,000 Which of the
An analyst is evaluating the solvency and liquidity of Apex Manufacturing and has collected the following data (in millions of euro):FY5 (€) FY4 (€) FY3 (€)Total debt 2,000 1,900 1,750 Total equity 4,000 4,500 5,000 Which of the following would be the analyst’s most likely conclusion?A . Th
An analyst is interested in assessing both the effi ciency and liquidity of Spherion PLC. Th e analyst has collected the following data for Spherion:FY3 FY2 FY1 Days of inventory on hand 32 34 40 Days sales outstanding 28 25 23 Number of days of payables 40 35 35 Based on this data, what is the
Based on the following information for Star Inc., what are the total net adjustments that the company would make to net income in order to derive operating cash fl ow?Year Ended Income Statement Item 12/31/2010 Net income $20 million Depreciation $ 2 million Balance Sheet Item 12/31/2009 12/31/2010
Jaderong Plinkett Stores reported net income of $25 million. Th e company has no outstanding debt. Using the following information from the comparative balance sheets (in millions), what should the company report in the fi nancing section of the statement of cash fl ows in 2010?Balance Sheet Item
Silverago Incorporated, an international metals company, reported a loss on the sale of equipment of $2 million in 2010. In addition, the company’s income statement shows depreciation expense of $8 million and the cash fl ow statement shows capital expenditure of $10 million, all of which was for
An analyst gathered the following information from a company’s 2010 fi nancial statements (in $ millions):Balances as of Year Ended 31 December 2009 2010 Retained earnings 120 145 Accounts receivable 38 43 Inventory 45 48 Accounts payable 36 29 In 2010, the company declared and paid cash
An analyst gathered the following information from a company’s 2010 fi nancial statements (in $ millions):Year ended 31 December 2009 2010 Net sales 245.8 254.6 Cost of goods sold 168.3 175.9 Accounts receivable 73.2 68.3 Inventory 39.0 47.8 Accounts payable 20.3 22.9 Based only on the
Equity equals:A . Assets – Liabilities.B . Liabilities – Assets.C . Assets + Liabilities.
During 2009, Argo Company sold 10 acres of prime commercial zoned land to a builder for $5,000,000. Th e builder gave Argo a $1,000,000 down payment and will pay the remaining balance of $4,000,000 to Argo in 2010. Argo purchased the land in 2002 for$2,000,000. Using the installment method, how
At the beginning of 2009, Florida Road Construction entered into a contract to build a road for the government. Construction will take four years. Th e following information as of 31 December 2009 is available for the contract:Total revenue according to contract $10,000,000 Total expected cost $
Fairplay had the following information related to the sale of its products during 2009, which was its fi rst year of business:Revenue $1,000,000 Returns of goods sold $ 100,000 Cash collected $ 800,000 Cost of goods sold $ 700,000 Under the accrual basis of accounting, how much net revenue would be
Denali Limited, a manufacturing company, had the following income statement information:Revenue $4,000,000 Cost of goods sold $3,000,000 Other operating expenses $ 500,000 Interest expense $ 100,000 Tax expense $ 120,000 Denali’s gross profi t is equal to A . $280,000.B . $500,000.C . $1,000,000.
An example of an expense classifi cation by function is:A . tax expense.B . interest expense.C . cost of goods sold.
An analyst has compiled the following information regarding Rubsam, Inc.Liabilities at year-end € 1,000 Contributed capital at year-end € 500 Beginning retained earnings € 600 Revenue during the year € 5,000 Expenses during the year € 4,300 Th ere have been no distributions to owners. Th
An analyst has collected the following information regarding a company in advance of its year-end earnings announcement (in millions):Estimated net income $ 200 Beginning retained earnings $ 1,400 Estimated distributions to owners $ 100 Th e analyst’s estimate of ending retained earnings (in
analyze and interpret how balance sheet modifi cations, earnings normalization, and cash fl ow statement related modifi cations aff ect a company’s fi nancial statements, fi nancial ratios, and overall fi nancial condition.
evaluate how a given change in accounting standards, methods, or assumptions aff ects fi nancial statements and ratios;
evaluate the quality of a company’s fi nancial data, and recommend appropriate adjustments to improve quality and comparability with similar companies, including adjustments for diff erences in accounting standards, methods, and assumptions;
identify fi nancial reporting choices and biases that aff ect the quality and comparability of companies’ fi nancial statements, and explain how such biases may aff ect fi nancial decisions;
demonstrate the use of a framework for the analysis of fi nancial statements, given a particular problem, question, or purpose (e.g., valuing equity based on comparables, critiquing a credit rating, obtaining a comprehensive picture of fi nancial leverage, evaluating the perspectives given in
describe sources of information about risk.
evaluate the balance sheet quality of a company;
describe indicators of balance sheet quality;
evaluate the cash fl ow quality of a company;
describe indicators of cash fl ow quality;
evaluate the earnings quality of a company;
explain mean reversion in earnings and how the accruals component of earnings aff ects the speed of mean reversion;
describe indicators of earnings quality;

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