Financial Statement Analysis 1st Edition Sujit Sikidar, H. C. Gautam - Solutions

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EXERCISE 4–1 On December 31, Year 1, Carme Company reports its accounts receivable from credit sales to customers. Carme Company uses the allowance method, based on credit sales, to estimate bad debts. Based on past experience, Carme fails to collect about 1% of its credit sales. Carme expects
EXERCISE 4–2 K2 Sports, a wholesaler that has been in business for two years, purchases its inventories from various suppliers. During these two years, each purchase has been at a lower price than the previous purchase. K2 uses the lower-of-(FIFO)-cost-or-market method to value its
EXERCISE 4–1 Cost for inventory purposes should be determined by the inventory cost flow method best reflecting periodic income.Required:a. Describe the inventory cost flow assumptions of (1) average-cost, (2) FIFO, and (3) LIFO.b. Discuss management’s usual reasons for using LIFO in an
EXERCISE 4–1 Inventory and cost of goods sold figures prepared under the LIFO cost flow assumption versus the FIFO cost flow assumption can differ dramatically.Required:a. Would an analyst consider ending inventory asset value more useful if computed using LIFO or FIFO? Explain.b. Would an
EXERCISE 4–1 Refer to the financial statements of Campbell Soup Company in Appendix A.Required:a. Compute Year 10 cost of goods sold and gross profit under the FIFO method. (Note: At the end of Year 9, LIFO inventory is $816.0 million, and the excess of FIFO inventory over LIFO inventory is $88
EXERCISE 4–1 During a period of rising inventory costs and stable output prices, describe how net income and total assets would differ depending upon whether LIFO or FIFO is applied. Explain how your answer would change if the company is experiencing declining inventory costs and stable output
EXERCISE 4–1 A balance sheet, which is intended to present fairly the financial position of a company, frequently is criticized for not reflecting all assets under the control of a company.Required:Cite five examples of assets that are not presently included on the balance sheet. Discuss the
EXERCISE 4–1 An analyst must be familiar with the determination of income. Income reported for a business entity depends on proper recognition of revenues and expenses. In certain cases, costs are recognized as expenses at the time of product sale; in other situations, guidelines are applied in
EXERCISE 4–1 Refer to the financial statements of Colgate in Appendix A.Required:a. Compute the following analytical measures applied to Colgate for 2006.(1) Average total life span of plant and equipment.(2) Average age of plant and equipment.(3) Average remaining life of plant and equipment.b.
EXERCISE 4–1 Refer to the financial statements of Campbell Soup Company in Appendix A.Required:a. Compute the following analytical measures applied to Campbell Soup for both Years 10 and 11:(1) Average total life span of plant and equipment.(2) Average age of plant and equipment.(3) Average
EXERCISE 4–1 Which of the following items are classified as assets on a typical balance sheet?a. Depreciation.b. CEO salary.c. Cash.d. Deferred income taxes.e. Installment receivable (collectible in 3 years).f. Capital withdrawal (dividend).g. Inventories.h. Prepaid expenses.i. Deferred
EXERCISE 4–1 Refer to the financial statements of Campbell Soup Company in Appendix A.Required:Campbell Soup mainly uses the LIFO cost assumption in determining its cost of goods sold and inventory amounts. Compute both ending inventory and gross profit of Campbell Soup for Year 11 assuming the
CASE 4–5 Toro Manufacturing is organized on January 1, Year 5. During Year 5, financial reports to man-agement use the straight-line method of depreciating plant assets. On November 8, you (as consultant) hold a conference with Toro’s officers to discuss the depreciation method for both tax and
3–1. Identify and assess the principal characteristics of liabilities and equity.
3–1. Analyze and interpret lease disclosures and explain their implications and the adjustments to financial statements.
3–1. Analyze postretirement disclosures and assess their consequences for firm valuation and risk.
3–1. Analyze contingent liability disclosures and describe their risks.
3–1. Identify off-balance-sheet financing and its consequences to risk analysis.
3–1. Analyze and interpret liabilities at the edge of equity.
3–1. Explain capital stock and analyze and interpret its distinguishing features.
3–1. Describe retained earnings and their distribution through dividends.
3–1. Identify and describe the two major sources (as linked with business activities) of current liabilities.
3–2. Identify the major disclosure requirements for financing-related current liabilities.
3–4. Explain how bond discounts and premiums usually arise. Describe how they are accounted for.
3–7. Describe the major disclosure requirements for long-term liabilities.
3–10.a. Describe the criteria for classifying leases by a lessee.b. Prepare a summary of accounting for leases by a lessee.
3–11.Aa. Identify the different classifications of leases by a lessor. Describe the criteria for classifying each lease type.b. Explain the accounting procedures for leases by a lessor.
3–12.A Describe the provisions concerning leases involving real estate.
3–13. Discuss the implications of lease accounting for the analysis of financial statements.
3–14.A When a lease is considered an operating lease for both the lessor and the lessee, describe what amounts will be found on the balance sheets of both the lessor and the lessee related to the lease obligation and the leased asset.
3–15.A When a lease is considered a capital lease for both the lessor and the lessee, describe what amounts will be found on the balance sheets of both the lessor and the lessee related to the lease obligation and the leased asset.
3–16. Discuss how the lessee reflects the cost of leased equipment in the income statement for (a) assets leased under operating leases and (b) assets leased under capital leases.
3–17.A Discuss how the lessor reflects the benefits of leasing in the income statement under (a) an operating lease and (b) a capital lease.
3–18. Companies use various financing methods to avoid reporting debt on the balance sheet. Identify and describe some of these off-balance-sheet financing methods.
3–19. Describe differences between defined benefit and defined contribution pension plans. How does the accounting differ across these two types of plans?
3–20. From a purely economic point of view define what constitutes the following: (a) pension obligation,(b) pension plan assets, (c) net economic position of the pension plan, and (d) economic pension cost?
3–21. What are the primary nonrecurring components of pension cost? Describe how current pension accounting defers and amortizes these nonrecurring components.
3–23. What does current pension accounting (SFAS 158) recognize in the balance sheet? How is it different from what was recognized earlier (under SFAS 87)?
3–25. What are other postretirement employee benefits (OPEBs)? What are the major differences between pensions and OPEBs?
3–26. What are the primary categories of information disclosed in the postretirement benefit footnote?
3–27. What considerations must be kept in mind when adjusting the financial statements (balance sheet and income statement) for postretirement benefits?
3–30. What determines a company’s cash flows related to pensions and OPEBs? Why are current cash outflows relating to pensions not a good predictor for future cash flows?
3–31.B Describe alternative measures for the pension obligation. Which measure is legally binding?
3–32.B Describe the “corridor method” for deferring and amortizing actuarial gains and losses and return on plan assets. What is the rationale for using this method?
3–33.B What is the OPEB obligation and how is it determined?
3–34.a. Explain a loss contingency. Provide examples.b. Explain the two conditions necessary before a company can record a loss contingency against income.
3–36. Define a commitment and provide three examples of commitments for a company.
3–37. Explain when a commitment becomes a recorded liability.
3–38. Define off-balance-sheet financing and provide three examples.
3–40. Describe the criteria a company must meet before a transfer of receivables with recourse can be booked as a sale rather than as a loan.
3–41. Explain how off-balance-sheet financing items should be treated for financial analysis purposes.
3–42. Identify types of equity securities that are similar to debt.
3–43. Identify and describe several categories of reserves, allowances, and provisions for expenses and losses.
3–44. Explain why analysis must be alert to the accounting for future loss reserves.
3–45. Distinguish between different kinds of deferred credits on the balance sheet. Discuss how to analyze these accounts.
3–47. Identify features of preferred stock that make it similar to debt. Identify the features that make it more like common stock.
3–48. Explain the importance of disclosing the liquidation value of preferred stock, if different from par or stated value, for analysis purposes.
3–49. Explain why the accounting for small stock dividends requires that market value, rather than par value, of the shares distributed be charged against retained earnings.
3–50. Identify what items are treated as prior period adjustments.
XERCISE 3–1 Refer to the financial statements of Campbell Soup in Appendix A.Required:a. Determine the net change in long-term debt during Year 11.b. Analyze and discuss the relative mix of debt financing for Campbell Soup. Do you think Campbell Soup has any solvency or liquidity problems? Do you
EXERCISE 3–1 On January 1, Year 8, Von Company entered into two noncancellable leases of new machines for use in its manufacturing operations. The first lease does not contain a bargain purchase option and the lease term is equal to 80% of the estimated economic life of the machine. The second
EXERCISE 3–1 Sales-type leases and direct financing leases are two common types of leases from a lessor’s perspective.Required:Compare and contrast a sales-type lease with a direct-financing lease on the following dimensions:a. Gross investment in the lease.b. Amortization of unearned interest
EXERCISE 3–1 Consider the following excerpt from an article published in Forbes:The Supersolvent No longer is it a mark of a fuddy-duddy to be free of debt. There are lots of advantages to it. One is that you always have plenty of collateral to borrow against if you do get into a jam. Another is
EXERCISE 3–6 Nearly all companies confront loss contingencies of various forms.Required:a. Describe what conditions must be met for a loss contingency to be accrued with a charge to income.b. Explain when disclosure is required, and what disclosures are necessary, for a loss contingency that does
EXERCISE 3–1 Refer to the financial statements of Campbell Soup in Appendix A.Required:a. Identify the cause of the $101.6 million increase in shareholders’ equity for Year 11.b. Compute the average price at which treasury shares were repurchased during Year 11.c. Compute the book value of
EXERCISE 3–1 Capital stock is a major part of a corporation’s equity. The term capital stock embraces both common and preferred stock.Required:a. Identify the basic rights inherent in ownership of common stock and explain how owners exercise them.b. Describe preferred stock. Discuss various
EXERCISE 3–1 Presidential Realty Corporation reports the following regarding its distributions paid on common stock: “Cash distributions on common stock were charged to paidin surplus because the parent company has accumulated no earnings (other than its equity in undistributed earnings of
EXERCISE 3–1 The purchase of treasury stock (commonly called stock buybacks) is being done with increasing frequency in lieu of dividend payments.Required:a. Explain why stock buybacks are similar to dividends from the company’s viewpoint.b. Explain why managers might prefer the purchase of
EXERCISE 3–1 Carson Company sponsors a defined benefit pension plan. The plan provides pension benefits determined by age, years of service, and compensation. Among the components included in the recognized net pension cost for a period are service cost, interest cost, and actual return on plan
EXERCISE 3–1 Refer to the financial statements of Campbell Soup Company in Appendix A.Required:a. Campbell Soup Company has zero coupon notes payable outstanding.(1) Indicate the total amount due noteholders on the maturity date of these notes.(2) The liability for these notes is lower than the
EXERCISE 3–1 Westfield Capital Management Co.’s equity investment strategy is to invest in companies with low price-to-book ratios, while considering differences in solvency and asset utilization. Westfield is considering investing in the shares of either Jerry’s Departmental Stores ( JDS) or
EXERCISE 3–1 The U.S. government actively seeks the identification and cleanup of sites that contain hazardous materials. The Environmental Protection Agency (EPA)identifies contaminated sites under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA). The government
PROBLEM 3–6 Refer to the financial statements of Campbell Soup in Appendix A. The Note on Pension Plans and Retirement Benefits describes computation of pension expense, projected benefit obligation (PBO), and other elements of the pension plan (all amounts in millions).Required:a. Explain what
PROBLEM 3–6 The weighted-average discount rate used in determining General Energy Co.’s actuarial present value of its pension obligation is 8.5%, and the assumed rate of increase in future compensation is 7.5%. The expected long-term rate of return on its plan assets is 11.5%. Its pension
PROBLEM 3–6 Refer to Colgate’s annual report in Appendix A at the end of the book and answer the following questions:a. What type of pension plan does Colgate have for a majority of its employees? What are the primary other postretirement benefits (OPEBs) that Colgate offers its employees?b.
PROBLEM 3–6 Refer to Colgate’s Annual Report in Appendix A at the end of the book and answer the following questions:a. Make necessary financial adjustments to reflect the net economic position of the pension and OPEB plans on the balance sheet and the economic benefit cost in income for 2006
PROBLEM 3–6 Refer to the annual report of Campbell Soup in Appendix A.Required:a. Identify Campbell Soup’s major categories of liabilities. Identify which of these liabilities require recognition of interest expense.b. Reconcile activity in the long-term borrowing account for Year 11.c.
PROBLEM 3–6 Refer to the annual report of Campbell Soup in Appendix A.Required:a. Determine the book value per share of Campbell Soup’s common stock for Year 11.b. Identify the par value of Campbell Soup’s common shares. Determine the number of common shares authorized, issued, and
PROBLEM 3–6 The airline industry is one of the more volatile industries. During lean years in the early 1990s, the industry wiped out the earnings it had reported during its entire history. Pan American Airlines and Eastern Airlines ceased operations, while Continental Airlines, TWA, and US Air
PROBLEM 3–6 Condensed financial statements of General Electric, along with note information regarding postretirement benefits, are shown here:INCOME STATEMENTS BALANCE SHEETS ($ millions) 1998 1997 1996 1998 1997 Revenues ................................................$100,469 $90,840 $79,179
CASE 3–7 Much of the litigation against Philip Morris is related to exposure of persons to environmental tobacco smoke. This is addressed by Philip Morris in the following excerpts from its Year 8 annual report:Pending claims related to tobacco products generally fall within three categories: (i)
I. What is meant by Accounting Information ? What are the qualitative features of an accounting information ?
2. What are Financial Statements? Explain the special features of each of them.
3. What are the constituents of Financial Statements? Give a brief note on each of them.
4. What are the elements of Financial Statements? Explain the characteristics of each of them.
5. Discuss the statutory requirements for the preparation of Financial Statements in India.
6. Define Assets, Liabilities and Equities showing their characteristics.
7. "Financial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics." Discuss the nature of financial effects of transactions portrayed in financial statements.What are the broad classes of those
· 8. Discuss the four principal qualitative characteristics of Accounting Information.
9. "Financial accounting usually emphasizes the economic substance of events even though the legal form may differ and suggest different treatments." Do you agree?
1. Define Accounting Theory. Clearly show the differences between Accounting Theory and Theories of Accounting.
2. "A single universally accepted basic accounting theory does not exist at this time. Instead, a multiplicity of theories has been proposed." Elaborate.(G.U. M.Com., D.U. M.Com.)
3. Discuss the primary purpose of accounting theory.
4. Analyse the relationship between accounting theory and accounting practices. State the advantages of accounting theory.
5. "Accounting systems operate within the economic, social and political framework, and have to be in tune with it." Explain clearly with the help of suitable illustrations how accounting has passed through different phases due to changing economic and social environment. (D.U. M.Com.)
6. Explain the basic features of accounting. Discuss in brief the basic accounting principles.
7. What is meant by conceptual framework of accounting ? Discuss in this regard the initiative taken by the ICAI.
8. What are the qualitative characteristics of accounting information ? Explain.
9. Distinguish between accounting principles and practices.
10. What is meant by generally accepted accounting principles?(D.U. M.Com., 1988)

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Financial Statement Analysis 1st Edition Sujit Sikidar, H. C. Gautam - Solutions

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