Questions and Answers of Financial Accounting For MBA

The Financial Times and the Wall Street Journal carried a legal notice entitled “The Thomas Regout Company has called for the redemption of all of its €3.50 Convertible Preferred Stock.”
Microsoft Corporation is one of the world’s leading developers and retailers of PC software. Presented below are excerpts from Microsoft’s June 30, 2016 annual report regarding its
Calculating the Cumulative Foreign Currency Translation Adjustment.Graham International Ltd., an Australian Company, is a wholly owned but financially independent operating subsidiary of its
Wal-Mart Stores, Inc. is the world’s largest retailer as measured by total revenues. As of January 2016, the company operated 11,530 retail units under 63 banners in 28 countries and e-commerce
The 2015 annual report of The Procter & Gamble Company (P&G) is available at www.pginvestor.com. After reviewing P&G’s annual report, respond to the following questions.a. What types of equity
Consider a publicly held company whose products you are familiar with. Some examples might include:Access the company’s public website and search for its most recent annual report. (Some companies
The 2014 financial. statements of LVMH Moet Hennessey-Louis Vuitton S.A. are presented in Appendix C of this book. LVMH is a Paris-based holding company and one of the world’s largest and
Bear & Company reports the following information on its income statements and tax returns:The difference between net income and taxable income is entirely due to different depreciation methods
Upland Inc. reports the following information in its 2017 annual report for its defined benefit pension plan.RequiredHow much is the company’s retirement fund obligations over or underfunded? How
In September 2014, Home Depot stated that an estimated 56 million credit and debit cards were exposed during a five-month-long attack on its payment terminals. On September 19, 2014, the New York
The May 2, 2006, edition of The Financial Times carried the following leading story headline:The related article reported that Sea Containers Ltd., a Bermuda-based container leasing and passenger
In 2006, the Financial Accounting Standards Board adopted new pension accounting guidance which required that, effective year-end 2007, pension and retirement-benefit plan surplus and deficit funding
On April 13, 2006, Bausch & Lomb Inc. pulled its ReNu contact lens solution from suppliers’ shelves over mounting concerns that the product was linked to over 100 cases of a rare fungal eye
The following information was taken from the 2014 annual report of Microsoft Inc.:A review of the footnotes to Microsoft’s annual report reveals that two major accounting policies affecting its
The following information is taken from the annual report of The Coca-Cola Company (KO):The footnotes to the company’s annual report reveal that the primary contributor to its deferred income tax
The following information is taken from the annual report of The Coca-Cola Company:Discuss whether Coca-Cola’s pension plans are fully funded at year-end of Year 1 and Year 2. Did the company’s
The annual report of Johnson & Johnson (J&J) disclosed the following information:Between Year 1 and Year 4, J&J lowered the discount rate used to calculate the present value of its
Deferred income tax liabilities arise because of differences in the policies used to account for revenue and expenses for financial reporting purposes versus the policies utilized to report revenue
The 2014 annual report of The Home Depot Inc. revealed the following information regarding its derivative securities:Describe the financial effects of the swap for Home Depot. Why has Home Depot
In a prior annual report, Johnson & Johnson disclosed that its employee retirement obligations were underfunded by $$2.063$ billion at year-end. And, of this amount, only $$475$ million was
As noted in the ethics perspective at the end of this chapter, firms routinely maintain separate sets of books for their financial reporting and their tax reporting. Can you think of any reason why
The Sample Corporation prepared the following income statements and income tax returns for Year 1 through Year 4.Calculate the balance in the company’s deferred income tax liability account at
The Waterloo Company uses straight-line depreciation accounting in its corporate financial reports but MACRS depreciation accounting for income tax purposes.At the end of the year, Waterloo reported
Smith & Sons Company presented the following information in the income tax footnote in its annual report:How much tax expense did Smith & Sons report on its income statement for the year? How
The following information is taken from the 2014 annual report of Johnson & Johnson (J&J):Calculate the amount that J&J’s retirement fund obligations are underfunded as of each
The Arizona Company, a U.S.-based manufacturer, ordered a piece of equipment from Sonora Inc., a Mexico-based supplier, agreeing to pay 300,000 Mexican Ro pesos upon delivery of the equipment in
The Phoenix Company purchases a piece of equipment from the Anthem Company by issuing a three-year note with a face value of $$100,000$. The two companies sero agree that the interest rate on the
The Portet Wine Company holds 20,000 gallons of wine in inventory at year-end. The company expects to age the wine for another six months before selling it as bulk wine. Given uncertainties
Bristol-Myers Squibb Company (BMS) engages in the discovery, development, license, manufacture, marketing, distribution, and sale of pharmaceutical and other health care products. Selected financial
Microsoft Corporation is a leading designer and retailer of PC software applications. In its 2012 annual report, the company disclosed that the European Union Competition Commission had opened an
Claremont Enterprises, Inc. started operations in early 2015. During the first year of operations, Claremont generated sales of $$2.5$ million, and at year-end, had $$250,000$ in outstanding
At the start of business, the Miller Company acquired a $$100,000$ piece of equipment that was to be depreciated on a straight-line method basis for financial statement purposes but on an
The Herberger Oil & Gas Company explored for and developed oil and gas wells in Texas, Louisiana, and Oklahoma. Presented below are the company’s income statements for a five-year period under
Global Enterprises (GE) acquired MNC Inc. As part of the acquisition, GE assumed responsibility for MNC’s $$250$ million of six percent, senior notes. Global Enterprises subsequently guaranteed
The financial statements of MNE Corporation revealed the following:Required 1. Why does MNE Corporation use foreign exchange derivatives? What is the likely form of these derivatives?2. What is the
The Procter & Gamble Company is a U.S.-based multinational enterprise that manufactures and markets a range of consumer products worldwide. The company’s 2015 annual report discloses the
McGonagall, Inc. is a worldwide manufacturer of plastic parts.The company’s pension disclosures from its annual report were as follows:Required 1. Identify the following values of 2014 and 2015:a.
The 2015 annual report of The Procter & Gamble Company (P&G) is available at www.pginvestor.com. After reviewing P&G’s annual report, respond to the following questions.a. Describe P&G’s
Consider a publicly held company whose products you are familiar with. Some examples might include:Access the company’s public website and search for its most recent annual report. (Some companies
The 2014 financial statements of LVMH Moet Hennessey-Louis Vuitton S.A. are presented in Appendix C of this book. LVMH is a Paris-based holding company and one of the world’s largest and best-known
It is commonly understood that the cost of financing a business’s asset purchases with debt is cheaper than financing those purchases with equity. Discuss why debt financing is cheaper than equity
In 2005, The General Motors Corporation (GM) reported a net loss of $$10.6$ billion.Moreover, the automobile manufacturer had been losing U.S. market share to increasing competition from Japanese
In early 2006, The General Motors Corporation (GM) took significant steps to improve its deteriorating financial condition. Besides downsizing its workforce and closing certain inefficient plants,
Johnson & Johnson reported the following borrowings in note 7 of its 2014 annual report:Discuss the difference between a “note” and a “debenture.” Of Johnson & Johnson’s (J&J)
It is widely accepted that bonds may sell at a discount from their par value, at their par value, or at a premium above their par value. Discuss why, and under what circumstances, a bond would sell
When bonds are sold by a company, they are recorded on the issuing firm’s financial statements at their selling price. This price reflects the yield rate on the date of sale for equivalent
In 2015 Moody’s Investors Service (Moody’s) lowered Advanced Micro Devices, Inc.’s (AMD) corporate family rating to B3 from B2, and the ratings on the senior unsecured notes to Caal from B2.
Many businesses use operating leases as a method to finance their operating assets. One of the frequently stated reasons for the popularity of operating leases (as opposed to capital leases) is that
In 2000, ALZA Corporation, a wholly owned subsidiary of the Johnson & Johnson (J&J) Company, sold zero-coupon convertible debentures at a price of $$551.26$ per $$1,000$ principal amount at
In 2006, US Airways Group announced that more than 99 percent of its convertible senior notes had been converted into the airline’s common stock. The $$112$ million of 7.5 percent notes, due
Collateralized debt obligations (CDOs) are bonds issued by a bank, real estate investment trust, or financial institution, which are backed by loans collateralized by commercial real estate (such as
The May 9, 2006, edition of the Wall Street Journal carried the following headline:The related article explained that UAL Corporation, parent company of United Airlines, reported first quarter net
Why do you suppose that managers desire to keep debt off the balance sheet even when they know that the obligation will be fully disclosed in the footnotes? Do you feel that it is ethical to choose
The relation between a bond’s coupon rate and TA2 yield rate is known to influence a bond’s issuance price. Presented below are coupon rates and yield rates some for a selection of corporate
Presented below are annual coupon rates, yield rates, and expected TA 2 duration for a series of debentures. Calculate the issuance price for each debenture assuming that the face value of each bond
On January 1, 2015, the Mayfield Corporation issued $$500$ million of zero-coupon debentures, due December 31, 2025. The proceeds of the bond sale totaled approximately $$192.772$ million.
The Longo Corporation issued $$60$ million maturity value in notes, De carrying a coupon rate of six percent, with interest paid semiannually. At the time of the note issue, equivalent Sa
Balsoom, Inc. issued $$100$ million maturity value of three-year notes, which carried a coupon rate of four percent and which paid interest semiannually. At the time of the note sale, equivalent
Smith & Company issued $$100$ million maturity value of ten-year bonds, which carried a coupon rate of siX percent, with interest paid semiannually. At the time of the debt offering, equivalent
On July 28, 2016, Shannon Corporation, a biotechnology firm located in Virginia, completed a private placement of zero-coupon convertible subordinated debentures. The zero-coupon debentures were
Smith & Company issued $$100$ million maturity value of six-year bonds, which carried a coupon rate of six percent and paid interest semiannually. At the time of the offering, the yield rate for
Johnson & Johnson disclosed in its annual report that it leases various vehicles and machinery using operating lease agreements. According to its footnotes the minimum payments required under the
The following information is taken from the 2014 annual report of Delta Air Lines, Inc. (in millions):Assume that the-cost of debt implicit in the company’s operating leases is five percent.
At the beginning of the year, Global Minds Inc. issued $$100$ million (maturity value) of 20-year debentures. The debentures carried a two percent per period coupon rate (i.e., 4% annually), were
At the beginning of the year, KMF Inc. issued $$200$ million aturity value) of 15-year, zero-coupon debentures, at a time when the yield rate was four percent per period. The KMF, Inc. bonds would
MTF Inc. is a manufacturer of electronic components for facsimile equipment. The company financed the expansion of its production facilities by issuing $$100$ million of ten-year bonds carrying a
Microsoft Corporation reported the following information on its long-term debt in its 2015 annual report (in millions):Required1. Are the June 1, 2019 notes recorded at a discount or a premium?
The Jefferson Company is a multinational manufacturer of electrical equipment and components.Selected financial information is as follows:Required1. The company reported that on February 1, 2016, the
On January 1, the president of KMF Inc. signed an eight-year lease agreement for retail space at a lease rate of $$50,000$ per year. During the negotiations, the president had learned that the
On January 1, Durant Inc. entered into a noncancelable ten-year lease for cooking equipment with a fair value of $$100$ million and requiring annual year-end lease payments. The company’s
On January 1, Longo Inc. entered into a noncancelable 15-year lease for cooking equipment with a fair value of $$150$ million and requiring annual year-end lease payments. The company’s year-end
McDonald’s Corp. was the lessee at 14,139 restaurant locations through ground leases at December 31, 2011. The lease terms are generally for 20 years. The company is also the lessee under
The 2015 annual report of the Procter & Gamble Company (P&G) is available at www.pginvestor.com. After reviewing P&G’s annual report, respond to the following questions.a. Calculate P&G’s total
Consider a publicly held company whose products you are familiar with. Some examples might include:Access the company’s public website and search for its most recent annual report. (Some companies
The 2014 financial statements of LVMH Moet Hennessey-Louis Vuitton S.A. are presented in Appendix C of this book. LVMH is a Paris-based holding company and one of the world’s largest and best-known
The Arcadia Company issued $$50$ million of five-year bonds on January 2. The bonds carried an annual coupon rate of six percent, with interest paid semiannually, and were issued at a time when
The following data was obtained from the financial records of the Costa Mesa Company for 2016:Minimum lease payments on operating leasesThe Costa Mesa Company’s operating leases carry an implicit
Sherwin Corporation invest its excess cash in equity securities when such founds are not needed to support operations. At the beginning of the year the company’s portfolio consisted of the
The Arcadia Company made an offer to purchase all of the outstanding shares of The Claremont Company at a price of $$10$ per share, or an aggregate of $$22$ million. Immediately prior to the
On January 1st Mammoth Company established Juno Inc., a wholly-owned, self-sustaining British subsidiary with assets valued at 50 million pounds. The pound is the functional currency for Juno.The
The Arcadia Company is contemplating a large capital investment of $$32$ million in new productionline equipment, which is expected to have a useful life of six years, a residual value of $$2$
The McGee Company purchased a specialized machine five years ago for $$250,000$ and has taken & $$175,000$ of depreciation to date. Suppose the company sells the machine for $$50,000$.
San Joaquin Company began exploration of oil in Texas by paying $$600,000$ for the drilling rights on a large tract of land. The company drilled 10 oil wells on the land. Seven of the wells were
The Arcadia Company is contemplating a large capital investment of $$32$ million in new productionline equipment, which is expected to have a useful life of six years and a residual value of $$2$
Marketable securities are classified under U.S. GAAP as either trading securities or available-for-sale securities. Regardless of their classification, marketable securities are accounted for at
The equity method is often described as a “one-line consolidation.” Discuss the similarities of the equity method and consolidated reporting. Discuss how these methods differ in their financial
The noncontrolling interest account arises on the consolidated balance sheet and is reported as a component of shareholders’ equity. Many financial analysts, however, regard the account as a
Accumulated other comprehensive income (AOCI) appears as a subsection of shareholders’ equity on the balance sheet. Discuss the components of AOCI. What information does the AOCI convey to
The cumulative foreign currency translation adjustment (CTA) account appears on the balance sheet as a component of accumulated other comprehensive income. The CTA account may have either a positive
In 1989, PepsiCo Inc. acquired three international franchise-food operations—Pizza Hut, Taco Bell, and Kentucky Fried Chicken. PepsiCo paid an aggregate of $$3.4$ billion for the three
Both trading and available-for-sale accounting methods are considered mark-to-market accounting for investments. Describe their similarities and differences. Which of the two methods do you think
In 2006, CKX, Inc., a New York sports entertainment company, paid $$50$ million for an 80 percent ownership interest in G.O.A.T. LLC. (G.O.A.T. stands for “Greatest of All Time” and is a
In 2006, Danaher, Inc. announced its intent to acquire Sybron Dental Specialties, Inc., a manufacturer of dental products. Danaher indicated that it had agreed to pay $$47$ per share for all of
Aztar Corporation is an operator of casinos and hotels.The company’s flagship properties are the Tropicana Hotel & Casino located in Las Vegas, Nevada, and in Atlantic City, New Jersey. In early
On November 9, 2011, Dean Foods a Dallas Texas-based food and beverage company, announced that it would write off $$1.6$ billion, net of tax, in goodwill associated with its Fresh Dairy Direct
BAE Systems, Europe’s largest defense company, announced that it was selling its 20 percent shareholding in Airbus, Europe’s largest aircraft manufacturer, to EADS, the Franco-German aerospace
In early 2006, Henry Silverman, chairman and CEO of Cendant Corporation, announced that the company’s board of directors had approved the de-merger of Cendant into four operating companies—Avis
Following a series of hostile acquisitions in the global steel industry, Nippon Steel Corporation announced the implementation of a “poison-pill” plan designed to fend off any hostile takeover
The October 12, 2006, edition of The Wall Street Journal carried an article entitled “Expedia Might Trip Debt Covenant.” The article revealed that the share price of Expedia Inc., an online
Whistle-blowers often question themselves as to whether they are doing the “right thing.” Terms such as “snitch” and “tattletale” are often associated with an individual who exposes

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