Analysis Of Financial Statements 3rd Edition Frank J. Fabozzi, Pamela Peterson Drake - Solutions

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E8.9. Calculating Comprehensive Income to Shareholders:Intel Corporation (Medium)The following is adapted from the statement of shareholders' equity for IntelCorporation for2000(in millions of dollars). Intelfaces a 38percenttax rate.Balance, December 25, 1999 Net income Unrealized loss on
E8.8. Reformulation of an Equity Statement and Accounting for the Exercise of Stock Options: Starbucks Corporation (Hard) The statement of shareholders' equity below for Starbucks Corporation, the retail coffee vendor, is for fiscal year 2007.Additional Other Additional Accumulated Other (5 in
E8.7. A Simple Reformulation: J.C. Penney Company (Easy) 1,430 810 (720) (180) 12 50 468 1,870 Reformulate the following statement of shareholders' equity statement for J.C. Penney Company. Dividends paid consisted of $24 million in preferred dividends and $225 million in common dividends. J. C.
E8.6. Reformulating an Equity Statement with Employee Stock Options (Medium) Reformulate the following statement of shareholder's equity. The firm's tax rate is 35%, Balance, end of fiscal year 2008 Share issues from exercised employee stock options Repurchase of 24 million shares Cash dividend Tax
E8.5. Calculating the Loss to Shareholders from the Exercise of Stock Options (Easy) In 2004, an employee was granted 305 options on the stock of a firm with an exercise price of 520 per option. In 2009, after the options had vested and when the stock was trading at$35 per share, she exercised the
E8.3. A Simple Reformulation of the Equity Statement (Easy) 174.8 8.3 34.41 226.2 From the following information, prepare a reformulated statement of common sharehold ers' equity for 2008. Amounts are in millions. Balance, December 31, 2007 Net income Foreign currency translation loss Urrealized
E8.2. Calculating ROCE from the Statement of Shareholders' Equity (Easy) From the following information, calculate the return on common equity for the year 2009 (amounts in millions of dollars). There were no share repurchases. Common stockholders' equity, December 31, 2008 Dividends paid to common
E8.1. Some Basic Calculations (Easy)a. A firm listed total shareholders' equity on its balance sheet at $237 million. Preferred shareholders' equity was $32 million. What is the common shareholders' equity?b. From the following information, calculate the net dividend to shareholders and com-
C8.9. In September 1999, Microsoft agreedto buyVisioCorporation for stockvaluedat$1:26billion. Visio sellsa popularlineof technical drawing software. At the time, MIcrosoft had $14 billionof cash on its balance sheet. Why mightMicrosoft pay for the acquisition withitsownstockratherthanin cash?
C8.8. In February 1999, Boots, the leading retail chemist in the United Kingdom, announced plansto reform its employee optioncompensation scheme. In the future, it said,the firm willpurchase itsownsharesto provide shares to issuewhen options are exercised, and it will chargethe difference between
C8.7. CiscoSystems, the networking equipment firm, reported a tax benefit from the exerciseofstockoptions of$537 million in its fiscal 2004shareholders' equity statement.Overthe previous years, the taxbenefits hadcutmorethan25percent off the firm's tax bills.Commentators Saw this tax reliefas a
C8.6. Before it found the practice to be too expensive, Microsoft (anda number of other firms) wasin the habitof repurchasing someof the sharesthat it issued each year as employees exercised stock options. The rationale, according to commentators, wasto avoid the dilution fromsharesissued to
C8.5. The compensation vice president of General Millswasquoted in The Wall Street Journal onJanuary 14, 1997, as saying thatoption programs are"veryattractive for shareholders" because theycut fixed costsandboostprofits. So, forGeneral Mills's 1996year, seUing, general, andadministrative expenses,
C8.4. Inaccounting fur theconversion ofconvertible bondstocommon stock,mostfirms recordthe issueof sharesat theamount of thebookvalueof the bonds. The issue of the sharescouldbe recorded at their market value, withthe difference between the market valueof thesbares andthebookvalueof
C8.3. Are currency translation gains and losses real gainsand losses to shareholders?Aren'ttheyjust an accounting effectthatis necessary to consolidate financial statementspreparedin different currencies?
C8.2. Whycan "v-alue be lost" if an analyst works withreported net income ratherthan comprehensive income?
C8.1. Why is income in the equity portion of the balance sheet called "dirty-surplus"income?
Nike, Inc., is a leading manufacturer and marketer of sport and fashion footwear incorporated in 1968 and headquartered in Beaverton, Oregon, its brand name has become almost univer- sal, delivering sales of over $185 billion by 2008 and making it the largest seller of athletic footwear and apparel
E2.14. Calculating Stock Returns: Nike, Inc. (Easy) The shares of Nike, Inc., traded at $55 per share at the beginning of fiscal year 2008 and closed at $67 per share at the end of the year. Nike paid a dividend of 87.5 cents per share during the year. What was the return to holding Nike's shares
E2.13. Mismatching at WorldCom (Hard) During the four fiscal quarters of 2001 and the first quarter of 2002, WorldCom incorrectly capitalized access charges to local networks as assets (as explained in Box 2.3). The amount of costs capitalized were as follows: First quarter 2001 Second quarter,
E2.12. Find the Missing Numbers in Financial Statements: General Motors Corporation (Medium) General Motors ended its 2007 year with shareholders' equity of -$37,094 million at December 31 (yes, negative equity!). Six months later, at June 30, 2008, it reported -$56,990 million in equity after
E2.11. Find the Missing Numbers in the Equity Statement: Cisco Systems, Inc. (Easy) At the end of its 2007 fiscal year, Cisco Systems, Inc., the producer of routers and other hard- ware and software for the telecommunications industry, reported shareholders' equity of $31,931 million. At the end of
E2.10. Using Accounting Relations: Genentech Inc. (Medium) Consider the following excerpts from Genentech's 2004 income statement and cash flow statement. From the 2004 income statement (in millions): Revenues Costs and expenses Cost of sales $ 672.5 Research and development 547.5 Marketing,
E2.9. Using Accounting Relations: General Mills, Inc. (Medium) The following numbers appeared in the annual report of General Mills, Inc., the consumer foods manufacturer, for the fiscal year ending May 2008 (in millions of dollars):Fiscal 2008 Fiscal 2007 Total assets 19,042 18,184 Total
E2.8. Finding Financial Statement Information on the Internet (Easy) The Securities and Exchange Commission (SEC) maintains the EDGAR database of com- pany filings with the commission. Explore the SEC'S EDGAR site: http://www.sec.gov/edgar.shtml. Look at the "Descriptions of SEC Forms" page to
of year Total liabilities, end of year Dividends to shareholders Share issues Share repurchases Shareholders' equity, beginning of year $ 2,300 1,750 (90) 4,340 1,380 400 900 150 19,140 Show that at least one of these numbers must be wrong because it does not obey accounting relations.Applications
E2.7. Using Accounting Relations to Check Errors (Hard) A chief executive reported the following numbers for fiscal year 2009 to an annual meeting of shareholders (in millions): Revenues Total expenses, including taxes Other comprehensive income Total assets, end
E2.6. Violations of the Matching Principle (Easy) Generally accepted accounting principles (GAAP) notionally follow the matching princi- ple. However, there are exceptions. Explain why the following accounting rules, required under GAAP, violate the matching principle.a. Expenditures on research
2.5. Classifying Accounting Items (Easy) Indicate where in the financial statements the following appear under GAAP:a. Investment in a certificate of deposit maturing in 120 days.b. Expenses for bad debts.c. Allowances for bad debts.d. Research and development expenditures.e. A restructuring
E2.4. Preparing an Income Statement and Statement of Shareholders' Equity (Medium) From the following information for the year 2009, prepare an income statement and a state- ment of shareholders' equity, under GAAP rules, for a company with shareholders' equity at the beginning of 2009 of $3,270
E2.3. The Financial Statements for a Bank Savings Account (Medium) You received the following statement for 2009 for your savings account at a bank. Cash balances in the account eam interest at a 5 percent rate per annum. Balance, January 1, 2009 Earnings at an interest rate of 5% pa. Withdrawals
2.2. Applying Accounting Relations: Cash Flow Statement (Easy) A firm reported $130 million increase in cash over a year. It also reported $400 million in cash flow from operations, and a net $75 million paid out to claimants in financing activi- ties. How much did the firm invest in operations?
E2.1. Applying Accounting Relations: Balance Sheet, Income Statement, and Equity Statement (Easy) The following questions pertain to the same firm.a. The balance sheet reports $400 million in total assets and $250 million in sharehold- ers' equity at the end of a fiscal period. What are the firm's
C2.13. Whydo fundamental analysts want accountants to follow the reliability criterion when preparing financial reports?
C2.12. Why is the matching principle important?
C2.1 L Is amortization of a patentrightan appropriate expense in measuring valueadded in operations?
C2.10. Why is depreciation of plantand equipment an expense in the income statement?
C2.9. Why are dividends notan expense in the income statement?
C2.8. Price-to-book ratiosare determined byhowaccountants measure bookvalues. Can you think of accounting reasons for why price-to-book ratios were high in the 1990s? Whatotherfactors mightexplain the highPIB ratios?
C2.7. Givesome examples in which there is poor matching of revenues and expenses.
C2.6. Explain the difference between accounting valueadded(earnings) andshareholder valueadded.
C2.5. Explain why firms havedifferent price-earnings (PIE) ratios.
C2.4. Whymighta firm tradeat a price-to-book ratio(PIB) greaterthan l.0?
C2.3. Explain the difference between net income andnet income available to conunon.Which definition of income is usedin earnings-per-share calculations?
C2.2. Dividends are the onlywayto paycashout to shareholders. Trueor False?
C2.1. Changes in shareholders' equityare determined by totalearnings minusnetpayout to shareholders, butthe change in shareholders' equityis not equal to net income(in the income statement) minus netpayout to shareholders. Why?
A company with a price-earnings ratio of 14 has an earnings yield closest to:A. 7.14%B. 14.00%C. 92.86%
Which of the following is not produced by a company to communicate its financial results?A. Schedule 13D.B. Annual report.C. 10-K statement.
The role of the 8-K filing with the Securities and Exchange Commission is best described as to disclose:A. the annual report.B. executive compensation.C. holdings of beneficial owners.
The 10-Q filing with the Securities and Exchange Commission is produced by the company's:A. management.B. beneficial owners.C. independent accountant.
If an investor would like to find out the compensation of the highest paid employees of the company, the best source of this information is the company's:A. 8-K filing.B. 10-K filing.C. proxy statement.
The accounting standards that are used in many non-U.S. countries are the:A. Financial Accounting Standards.B. International Financial Standards.C. International Financial Reporting Standards.
Off-balance sheet financing is a concern because:A. It is illegal.B. It is recorded at book value instead of market value.C. There is debt that is not fully reported in the financial statements.
Which of the following statements is correct?A. Publicly traded corporations must disclose information to all investors at the same time in the interest of fairness.B. Publicly traded corporations are under no obligation to disclose information beyond the 10-K and 10-Q filings with the Securities
Which of the following statements best describes the use of economic data?A. Financial statements should be analyzed without the potential influence or bias arising from using economic data.B. Financial statements should be analyzed considering company events, the industry in which it operates, and
Which of the following is a direct result of the Sarbanes-Oxley Act?A. Shareholders can vote on executive compensation.B. Trading is prohibited by corporate insiders during a pension blackout period.C. Publicly traded corporations are required to have a code of ethics for financial officers.
Which of the following is a direct result of the Dodd-Frank Act?A. Increased penalties for white-collar crime.B. Rating agencies are not permitted to disclose the analysis behind the credit rating that they assigned.C. Publicly traded corporations must disclose the relation between the
The independent auditor's opinion is best described as an opinion as to whether the:A. performance of the company is sufficient.B. company's management has committed fraud.C. company's financial statements conform to generally accepted accounting principles.
Which of the following statements represents the valuation of accounts as of the end of the fiscal period?A. Balance sheet.B. Income statement.C. Statement of cash flows.
Depreciation is added back to net income in the statement of cash flows because it is:A. a cash flow.B. not taxable.C. a noncash expense that was deducted to arrive at net income.
Treasury stock is best described as:A. outstanding shares of stock of the company.B. authorized, yet unissued shares of stock of the company.C. shares of stock of the company that are purchased by the company.
Suppose a company has the following:Shareholders' equity is closest to:A. $$2$ million B. $$10$ million C. $$12$ million Current assets Current liabilities $10 million $8 million Net property, plant and equipment $20 million Long-term liabilities $12 million
The operating profit of a company is best described as the earnings:A. before interest and taxes.B. after interest but before taxes.C. before depreciation, amortization, interest, and taxes.
Which of the following methods will result in highest depreciation expenses, hence lowest reported earnings, in the first few years that an asset is depreciated?A. Straight-line depreciation.B. Declining balance depreciation.C. Double-declining balance depreciation.
A major source of deferred income taxes is the use of:A. off-balance sheet financing.B. net operating loss carryovers.C. straight-line depreciation for reporting purposes, but MACRS depreciation for tax purposes.
If a company borrows during the period using long-term debt to buy processing equipment, this directly affects all but which of the following?A. Cash flow for investing.B. Cash flow from financing.C. Cash flow from operations.
The SEC requires companies that present pro forma accounting statements or data to also provide:A. a reconciliation with GAAP.B. forecasted financial statements.C. an auditor's opinion on the fairness of the pro forma statements.
When a company sells products to a customer on credit, the resulting accrual is best described as:A. accruals management.B. a discretionary accrual.C. a nondiscretionary accrual.
If a company's management selects straight-line depreciation for an asset that is expected to lose most of its value in the earliest years of its life, this selection is most likely consistent with:A. accruals management.B. earnings manipulation.C. earnings management.
Which of the following is not a technique used to inflate revenues or net income?A. Increasing the rate of uncollectible accounts as a percentage of accounts receivable.B. Forcing customers to accept more inventory than reasonable, given anticipated demand.C. Overstating loan losses in profitable
Channel stuffing is best described as:A. pushing product onto dealers before the end of a fiscal period.B. exaggerating loan losses, only to reverse these in a subsequent fiscal period.C. increasing goodwill by allocating ever-larger amounts to the account in acquisitions.
Goodwill impairment is best described as:A. the sale of an intangible asset.B. a write-down of the goodwill account.C. the disclosure of a value for goodwill that is less than what is reported in the balance sheet.
A company that writes down its inventory by too much in one fiscal year will most likely experience:A. no effect on subsequent fiscal years' profits.B. increased profitability the following fiscal year.C. decreased profitability the following fiscal year.
A company with an underfunded pension plan that reduces its assumed return on plan assets for its defined benefit plan will, holding all other factors constant, most likely report:A. less plan underfunding.B. more plan underfunding.C. no effect on its plan's funding.
Lengthening the useful life of a depreciable asset will most likely:A. increase profitability.B. decrease profitability.C. have no effect on profitability.
The announcement of a restatement that is perceived as a result of an intentional act to deceive investors is most likely accompanied by:A. no stock market reaction.B. a negative stock market reaction.C. a positive stock market reaction.
The auditor opinion that indicates that the financial statements are presented fairly in conformity with GAAP, without exception, is the:A. adverse opinion.B. qualified opinion.C. unqualified opinion.
Which of the following is best described as a liquidity ratio?A. Quick ratio B. Return on assets C. Times interest earned ratio
It takes a company 80 days to convert its purchased raw materials into sold inventory, 50 days to collect on its receivables from its customers, and 30 days to pay its own suppliers. This company has an operating cycle closest to:A. 60 days.B. 100 days.C. 130 days.
Which of the following types of ratios are best for evaluating how well a company puts its assets to use?A. Activity ratios B. Liquidity ratios C. Financial leverage ratios
The DuPont system involves the breakdown of a return on equity ratio into:A. profitability and activity components.B. liquidity, activity, and financial leverage components.C. profitability, activity, and financial leverage components.
If a company has a return on equity of 30% and a return on assets of 20%, its debt to assets ratio is closest to:A. 33%.B. 50%.C. 70%.
If a company has no debt, its:A. equity multiplier will be undefined.B. return on assets will be equal to its return on equity.C. operating return on assets will be equal to its return on assets.
A company with current assets of $$50$ million, current liabilities of$$30$ million, and inventory of $$10$ million has a current ratio and quick ratios, respectively, of:A. 2 and 1.B. 2 and 1.33.C. 1.67 and 1.33.
If it takes, on average, 40 days to collect on its customers' accounts, the company's accounts receivable turnover is closest to:A. 2.500 times.B. 9.125 times.C. 10.959 times.
If a company has a net income of $$400$ million, revenues of $$1$ billion, and total assets of $$800$ million, its total asset turnover and return on assets, respectively, are:A. 2 times and 40%.B. 1.25 times and 40%.C. 1.25 times and 50%.
Common size income statements provide which of the following ratios?A. Activity ratios B. Profitability ratios C. Financial leverage ratios
Pro forma earnings are best described as:A. projected earnings.B. earnings without extraordinary items.C. earnings determined using accounting principles other than GAAP.
Dilutive earnings per share will always be:A. equal to basic earnings per share.B. less than or equal to basic earnings per share.C. greater than or equal to basic earnings per share.
According to the Molodovsky effect, in recessionary environments, the price-earnings ratios of cyclical companies are most likely:A. correct.B. overstated.C. understated.
A cyclical company with a constant dividend growth rate strategy most likely will have:A. constant dividend yields.B. variable dividend payouts.C. constant dividend payouts.
For a company with dividends that are expected to grow at a rate of 4% per year, a current dividend that is $1.50 per share, and investors who require a 9% return on their investments, the value of a share of stock is closest to:A. $30.00B. $31.20C. $39.00
Suppose a company currently pays $1 in dividends, and dividends are expected to grow at a rate of 5% per year for two years and then grow at a rate of 3% per year, ad infinitum. If investors require an 8% return on their investment, the value of a share of stock is closest to:A. $19.85B. $21.20C.
Based on the relationships in the dividend valuation model, an increase in the dividend payout ratio most likely results in:A. a lower price-earnings ratio.B. a higher price-earnings ratio.C. no change in the price-earnings ratio.
A stock of a company that has a high book-to-market ratio is most likely referred to as a:A. value stock.B. growth stock.C. defensive stock.
Possible explanations for the role of the book value to market value in explaining stock returns include all but which of the following:A. The book value to market value ratio is a proxy for risk.B. The book value to market value ratio is a proxy for future growth.C. The book value to market value
Cash flow from operations may differ from net income because of:A. taxes paid.B. changes in working capital.C. interest payments on debt obligations.
If a company's net income is $$30$ million, its depreciation and amortization is $$10$ million, its interest expense is $$5$ million, and its tax rate is 30%, the company's EBDA and EBITDA, respectively, are closest to:A. $$40$ million and $$62$ million.B. $$42$ million and $$48$
Free cash flow to equity is cash flow from operations, less capital expenditures, plus:A. taxes.B. interest paid.C. net borrowings.
If a company has cash flow from operations of $$10$ million, capital expenditures of $$2$ million, and net borrowings of $$3$ million, its free cash from to equity is closest to:A. $$5$ million.B. $$11$ million.C. $$15$ million.

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Analysis Of Financial Statements 3rd Edition Frank J. Fabozzi, Pamela Peterson Drake - Solutions

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