The following information was taken from a recent iiicome statement of [VAX Corporation. IVAX is a holding
Question:
The following information was taken from a recent iiicome statement of [VAX Corporation. IVAX is a holding company with subsidiaries providing research, development, manufacturing, and marketing of brand name pharmaceutical products.
Required:
1. Recast IVAX’s income statement and present it in good form. Fill in the missing data.
2. Consider the item Restructuring costs and asset write-downs. What impact did this charge have on IVAX’s cash flows?
3. IVAX’s income statements over the last three years report research and development expenses averaging $51.3 million per year. [VAX incurred these expenses to enhance current products and to develop new products in the hope of generating higher future sales. GAAP requires that all such costs be expensed in the year incurred. Consider the following statement:
Research and development expenditures are really assets because they will benefit the future operations of the firm (that is, lead to higher sales).
If you agree, suggest an alternative way to account for research and development expenditures rather than expensing them in the year incurred. If you disagree, what are your reasons?
4. Assume that you are a financial analyst for [VAX. Your boss has asked you to project next year’s net earnings. What earnings number from the information provided here would you use as the basis for your projection? Why?
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