Questions and Answers of Financial Accounting Theory

XYl Ltd. is an owner-managed retail grocery store that went public on January 1, 2018. Afterward, Tom Jones, the fun-loving owner-manager, held 40 percent of the common stock and remained the chief
Refer to Theory in Practice 12.2 concerning Mark's Work Wearhouse, Ltd. As noted there, Mark's did not publish an earnings forecast for 1992, a year for which it was expecting a loss.RequiredSuggest
Refer to the study by Bozanic, Roulstone, and Van Buskirk (2018) in Section 12.8.2.Requireda. Based on the results of their study concerning standalone future-oriented statements, do these statements
Valeant Pharmaceuticals International Inc. is a large Canada-based multinational drug company. Its shares are traded on the Toronto and New York stock exchanges. Valeant adopted an aggressive
The comparative balance sheet o f JSA Ltd. at June 30, 2018, is as follows:JSA Ltd.'s 2018 income statement is as follows:Requireda. Calculate the various accruals on an item-by-item basis. For each
If a manager "takes a bath" to manage reported earnings downwards, the probability of that manager receiving a bonus in a future year rises. Explain why.
Say-on-pay votes by shareholders are now quite common. Occasionally, shareholders' non-binding votes do not approve executive compensation. For example, in 2013, share holders of Barrick Gold Corp.
You are engaged by the owner of a small firm to recommend a one-year compensation contract for the firm's top manager. She is concerned about cash flow and feels that in previous years the manager
Mr. O'Kay, a risk -neutral investor, is contemp lating a one-year, 8 percent loan of $750 to Firm J. Mr. O'Kay demands at least a 5 percent expected return per annum on loans like this. O'Kay is
Edison operates a small, fast-growing electronics business. His workload has expanded to the point where he decides to hire a full-time manager. He will then take one year off to travel, and on his
New Horizons Co. is a high-tech firm whose owner does not have the required management expertise to run the firm. The owner wants to hire a manager with the required expertise. The continued success
Arthur's small business has grown to the point where he plans to hire a full-time manager. Arthur, an architect, has little inclination and ab il ity to manage a medium-sized, fast-growing business
Refer to Theory in Practice 7.5, describing how The Blackstone Group proposed to account for the carried interest to be received from future earnings of unconsolidated firms it has invested
Vulture Ltd. is incorporated to invest in risky securities. On January 1, 2019, the company buys Volatile Ltd. bonds with a par value of $10,000. Vulture plans to hold these bonds until they mature
Refer to the sensitivity analysis of Husky Energy Inc. reproduced in Table 7.2. The analysis discloses the potential effects of changes in prices of oil and natural gas, and of changes in the
Manulife Financial is a large Canadian-based insurance and financial services company, with operations in Canada, United States, and Asia. The company reports on the basis of IASB standards. However,
Manulife Financial is a large Canadian-based insurance and financial services company. with operations in Canada. United States. and Asia. Manulife's profits suffered from low interest rates and poor
Should firms be required to fair-value their long-term debt even in the event of a mismatch? Outline arguments for and against this suggestion. Include arguments based on eliminating or reducing
Refer to Theory in Practice vignette 1.3, concerning the bankruptcy of New Century Financial. New Century had securitized and transferred to investors (i.e., derecognized) many (but not all) of its
Refer to Theory in Practice 7.1 reInco Ltd., discussing the failure of Inco to recognize impairment of its Voisey's Bay nickel mine prior to 2002. Current accounting standards in Canada require an
A technology company sells a complex computer program. It promises customers that it will provide updates and virus protection for three years from the date of sale. Upon signing the contract, the
Refer to Theory in Practice 3.1 concerning Home Capital Group (HC), describing the issues faced by HC following public revelation of fraud problems with its high-risk mortgage portfolio. The vignette
The 2018 IASB Conceptual Framework (Section 3. 7) has significant effects on how financial reporting is implemented.Requireda. The Framework drops the word "rational" as a description of investor and
OiiSands Petro Ltd reported its 2019 earnings on March 27,2020. Net income was a record $374 million, up from $191 million for the same quarter of the previous year. Return on equity was 25.7
Pat, a rational investor, has $5,000 to invest for one year, pending a large purchase. She has narrowed her choice down to two investments. One (a1) is to invest the full amount in shares of Company
XYZ Ltd. is a large retail company listed on a major stock exchange, and its reported net income for the year ended December 31, 2019, is $5 million. The earnings were announced to the public on
Refer to Theory in Practice 3.1, concerning Home Capital Group (HC), describing the issues faced by HC following public revelation of problems with its high-risk mortgage portfolio and its failure to
Sonja, a rational investor, has $2,500 to invest for one year while she completes her professional accounting designation. She is contemplating investing the full amount in shares of Northeastern Oil
Stephen is a rational, risk-averse investor with $5,000 to invest for one year. He has decided to invest this amount in a high-technology firm and has narrowed his choice down to either AB Ltd. or XY
David has $2,500 that he wishes to invest for one year. He has narrowed his choices down to one of the following two actions:a1: Buy bonds of X Ltd., a company that has a very high debt-equity ratio.
Tina has $3,000 that she wishes to invest for one year. She has narrowed her choices down to one of the following two actions:a1: Buy bonds of Risky Mining Ltd. The se pay 14.7% interest unless Risky
Prudent plans to invest $6,000 in one of the following instruments:• Bonds of J ltd., yielding 12% (a1)• Canada Savings Bonds, yielding 9% (a2)On the basis of his knowledge of current economic
The following RRA information is taken from the 2019 annual report of Moonglo Energy Inc.Balance of proved reserves: beginning of year........................$ 1,010Sales, net of production
The following RRA information is taken from the December 31, 2019, annual report of AY Energy, Inc.Requireda. Prepare an RRA income statement for AY Energy for 2019.b. AY Energy reports elsewhere in
The following supplemental RRA information is taken from the 2019 annual report of HL Oil & Gas Ltd.Requireda. Prepare an income statement for 2019 on an RRA basis.b. Use the concepts of
On January 1, 2019, Drill Deep Ltd. started its business by purchasing a productive oil well. The proved oil reserves from the well are expected to generate $8,000 cash flow at the end of 2019,
Contingent Corp. operates under ideal conditions of uncertainty. It has just purchased a new machine, at a cost of $3,575.10, paid for entirely from the proceeds of a stock issue. The interest rate
SC Ltd. operates under ideal conditions of uncertainty. On January 1, 2019, it purchased a capital asset that will last for two full years and then will be retired with no salvage. The purchase price
AltCoins Ltd. has just begun operating under ideal conditions of uncertainty. Its cash flows will depend on the state of the economy. On January 1, 2019, the company acquired plant and equipment that
EZ Sports Ltd. plans to manufacture cross-country skiing equipment. Its cash flows are highly dependent on the winter weather. EZ operates under ideal conditions of uncertainty. On August 1, 2019,
P Ltd. operates under ideal conditions of certainty. It has just bought a capital asset for $2,800, which will generate $1,350 cash flow at the end of one year and $1,443 at the end of the second
Undoubtedly Corp. operates under ideal conditions of certainty. It acquired its sole asset on January 1, 2019. The asset will yield $725 cash at the end of each year from 2019 to 2021, inclusive,
Explain why expected net income is also called "accretion of discount."

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