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978-1337614689 Chapter 0 Part 1
4-1 Chapter 4—Profitability Analysis MULTIPLE CHOICE 1. One important difference between return on assets (ROA) and return on common shareholder’s equity (ROCE) is that: a. ROA does not differentiate based on how a company finances its assets; ROCE does. b. […]
978-1337614689 Chapter 0 Part 2
4-17 24. To reduce the risk inherent in ______________________________ a company should strive for a high proportion of variable costs in its cost structure. ANS: cyclical sales PTS: 1 25. Firms that have either convertible securities or stock options or […]
978-1337614689 Chapter 1 Part 1
1-1 CHAPTER 1 OVERVIEW OF FINANCIAL REPORTING, FINANCIAL STATEMENT ANALYSIS, AND VALUATION Solutions to Questions, Exercises, Problems, and Teaching Notes to Cases 1.1 Porter’s Five Forces Applied to the Air Courier Industry. Buyer Power. Air courier services are a commodity. […]
978-1337614689 Chapter 1 Part 1
1-1 Chapter 1—Overview of Financial Reporting, Financial Statement Analysis, and Valuation MULTIPLE CHOICE 1. The tools for studying industry economics does not include: a. Value chain analysis b. Classification using Porter’s five forces c. Classification of cash flows d. Economic […]
978-1337614689 Chapter 1 Part 2
Overview of Financial Reporting, Financial Statement Analysis, and Valuation INCOME STATEMENT Operating revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales (excluding depreciation) or operating expenses (20.0) (80.0) (76.2) (56.1) (70.4) (62.4) (17.8) […]
978-1337614689 Chapter 1 Part 2
1-13 ANS: Buyer power PTS: 1 28. How easily can new firms enter a market is a question one might ask when assessing _____________________________________________. ANS: threat of entrants PTS: 1 29. How easily can customers switch to substitute products is […]
978-1337614689 Chapter 10 Part 1
10-1 CHAPTER 10 FORECASTING FINANCIAL STATEMENTS Solutions to Questions, Exercises, Problems, and Teaching Notes to Cases 10.1 Relying on Accounting to Avoid Forecast Errors. This question encourages students to think about the internal consistency in accounting and how it can […]
978-1337614689 Chapter 10 Part 1
10-1 Chapter 10—Forecasting Financial Statements MULTIPLE CHOICE 1. The objective of forecasting is to develop: a. stand-alone financial statements for future analysis. b. a set of realistic expectations for future value-relevant payoffs. c. a balance sheet and income statement that […]
978-1337614689 Chapter 10 Part 2
10-21 © 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 10.E Walmart Stores—Revised Balance Sheet Forecasts (Integrative Case 10.1) (amounts in millions) Actuals Forecasts 2013 […]
978-1337614689 Chapter 10 Part 2
10–14 2012 $160,814,329 440,587 14 $6,168,221 PTS: 1 4. The following information about Douglas Corp.’s Accounts Receivable and Sales are presented below: Year 2012-Beginning Balance of A/R = $791M Year 2012 -Ending Balance of A/R = $807M Year 2012 – […]
978-1337614689 Chapter 10 Part 3
Chapter 10 Forecasting Financial Statements 10-33 Exhibit 10.H Massachusetts Stove Company Projected Income Statements under Best-Case Scenario (Case 10.2) MASS. STOVE Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Income Statement Actual Projected Projected Projected Projected […]
978-1337614689 Chapter 11
11-1 CHAPTER 11 RISK-ADJUSTED EXPECTED RATES OF RETURN AND THE DIVIDENDS VALUATION APPROACH Solutions to Questions, Exercises, Problems, and Teaching Notes to Cases 11.1 The Dividends-Based Valuation Approach. [LO4] The theory behind the dividends valuation approach is straightforward. Dividends are […]
978-1337614689 Chapter 11
11-1 Chapter 11—Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach MULTIPLE CHOICE 1. Which of the following is not a problem with using a dividend-based valuation formula? a. Dividends are arbitrarily established. b. Dividends represent a transfer of […]
978-1337614689 Chapter 12 Part 1
12-1 CHAPTER 12 VALUATION: CASH-FLOW-BASED APPROACHES Solutions to Questions, Exercises, Problems, and Teaching Notes to Cases 12.1 Free Cash Flows. Cash flows are free if they are unencumbered and available to be distributed to financial claims, such as debt, preferred, […]
978-1337614689 Chapter 12 Part 1
12-1 Chapter 12—Valuation: Cash-Flow-Based Approaches MULTIPLE CHOICE 1. Which of the following is not a problem with using a dividend-based valuation formula? a. Dividends are arbitrarily established. b. Dividends represent a transfer of wealth to shareholders. c. Some firms do […]
978-1337614689 Chapter 12 Part 2
Chapter 12 Valuation: Cash-Flow-Based Approaches 12-21 Part II—Computing Walmart’s Share Value Using Free Cash Flows to All Debt and Equity Stakeholders g. Walmart’s capital structure at the end of 2015 consists of the following amounts and proportions: Amount Weight Debt […]
978-1337614689 Chapter 12 Part 2
12-13 Cash from investments (Increase) decrease in property & plant -31,536 -47,960 Acquisition (disposition) of subsidiaries or other business –702 –19 Increase (decrease) in marketable securities -18,825 380,737 Net cash provided by (used in) investing -51,063 332,758 Cash from financing […]
978-1337614689 Chapter 12 Part 3
Chapter 12 Valuation: Cash-Flow-Based Approaches 12-34 Exhibit 12.H Partial Projected Balance Sheets for Holmes Corporation (amounts in thousands) Balance Sheet Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Assets Cash 3,857 12,494 18,424 24,650 31,187 38,051 […]
978-1337614689 Chapter 13
13-1 CHAPTER 13 VALUATION: EARNINGS-BASED APPROACH Solutions to Questions, Exercises, Problems, and Teaching Notes to Cases 13.1 Valuation Approach Equivalence. Conceptually, valuation based on dividends, free cash flows for common equity shareholders, and residual income yield equiv- alent value estimates […]
978-1337614689 Chapter 13
13-1 Chapter 13—Valuation: Earnings-Based Approaches MULTIPLE CHOICE 1. If an analyst expects a firm to generate net income each period exactly equal to required earnings, then the value of the firm will be: a. exactly equal to the book value […]
978-1337614689 Chapter 14
14-1 Chapter 14—Valuation: Market-Based Approaches MULTIPLE CHOICE 1. Residual income is defined as: a. Difference between expected comprehensive income and required earnings by the firm b. Difference between comprehensive income and retained earnings c. Difference between comprehensive income and the […]
978-1337614689 Chapter 14 Part 1
14-1 CHAPTER 14 VALUATION: MARKET-BASED APPROACHES Solutions to Questions, Exercises, Problems, and Teaching Notes to Cases 14.1 Value Determinants. The same fundamental determinants of firm value (expected future earnings, cash flows, growth, and risk) should also determine the firm’s market […]
978-1337614689 Chapter 14 Part 2
Chapter 14 Valuation: Market-Based Approaches 14-12 d. Under these assumptions, Enron’s shares appear to be priced by the market to yield a 4.413% rate of return, as shown above, which is only marginally greater than the prevailing risk-free rate of […]
978-1337614689 Chapter 2 Part 1
2-1 CHAPTER 2 ASSET AND LIABILITY VALUATION AND INCOME RECOGNITION Solutions to Questions, Exercises, and Problems, and Teaching Notes to Cases 2.1 Relevance versus Representational Faithfulness. Relevance describes accounting information that is timely and has the capacity to affect a […]
978-1337614689 Chapter 2 Part 1
2-1 Chapter 2—Asset and Liability Valuation and Income Recognition MULTIPLE CHOICE 1. Which of the following assets appears on the balance sheet at Historical cost? a. Equipment b. Notes Payable c. Investments in Marketable Securities d. Accounts Payable ANS: A […]
978-1337614689 Chapter 2 Part 2
Chapter 2 Asset and Liability Valuation and Income Recognition 2-19 (2) The sale of the car triggers recognition of sales on the income statement of $45,000 and recognition of two assets: cash of $5,000 and a receivable of $40,000. In […]
978-1337614689 Chapter 2 Part 2
2-15 1. There are three valuation methods that reflect historical values: acquisition cost, adjusted acquisition cost, and present value of cash flows using historical interest rates. For each of three methods discuss what the valuation represents and provide an example […]
978-1337614689 Chapter 3 Part 1
3-1 CHAPTER 3 INCOME FLOWS VERSUS CASH FLOWS: UNDERSTANDING THE STATEMENT OF CASH FLOWS Solutions to Questions, Exercises, Problems, and Teaching Notes to Cases 3.1 Need for a Statement of Cash Flows. The amount of revenue recognized equals the amount […]
978-1337614689 Chapter 3 Part 1
3-1 Chapter 3—Income Flows versus Cash Flows: Understanding the Statement of Cash Flows MULTIPLE CHOICE 1. One rationale for the statement of cash flows is to: a. ensure that the cash account balances at year-end. b. reconcile differences between net […]
978-1337614689 Chapter 3 Part 2
Chapter 3 Income Flows versus Cash Flows: Understanding the Statement of Cash Flows 3-21 b. Nojiri Pharmaceuticals Statement of Cash Flows (amounts in millions) (Problem 3.28) Year Ended March 31: Year 2 Year 3 Year 4 Operations Net Income (Loss) […]
978-1337614689 Chapter 3 Part 2
3-13 ANS: 1. Adjusting revenues and expenses for changes in non-working capital accounts, for example depreciation, amortization and deferred income tax. 2. Adjusting revenues and expenses for changes in operating working capital accounts, for example accounts receivable and accounts payable, […]
978-1337614689 Chapter 4 Part 1
4-1 CHAPTER 4 PROFITABILITY ANALYSIS Solutions to Questions, Exercises, Problems, and Teaching Notes to Cases 4.1 Common-Size Analysis. Restating income statement line items as a percentage of sales and balance sheets as a percentage of total assets enables the analyst […]
978-1337614689 Chapter 4 Part 2
Chapter 4 Profitability Analysis 4-16 4.24 Calculating and Interpreting Profitability Ratios (amounts in millions). a. Profit Margin for ROA: [$196 + (1 – 0.35)($32)]/$2,998 = 7.2% Assets Turnover: $2,998/[0.5($3,163 + $3,241)] = 0.9 Return on Assets: [$196 + (1 – […]
978-1337614689 Chapter 5 Part 1
5-1 CHAPTER 5 RISK ANALYSIS Solutions to Questions, Exercises, Problems, and Teaching Notes to Cases 5.1 Interpreting Risk Disclosures. The SEC requires that companies identify the major risks with Item 1A of Form 10-K. Facebook identifies almost fifty risks. These […]
978-1337614689 Chapter 5 Part 1
5-1 Chapter 5—Risk Analysis MULTIPLE CHOICE 1. Economic theory teaches that differences in market returns must relate to differences in: a. book value b. perceived risk c. price-earnings ratio d. bankruptcy risk ANS: B PTS: 1 2. Market equity beta […]
978-1337614689 Chapter 5 Part 2
Chapter 5 Risk Analysis 5-16 © 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. with Best Buy’s supply chain transformation and inventory management. The new strategy […]
978-1337614689 Chapter 5 Part 2
5-14 PTS: 1 4. Bankruptcy analysis research has gone through many iterations, from univariate bankruptcy prediction models to sophisticated logit models. However, after examining the results of the research there appear to be a number of common factors that consistently […]
978-1337614689 Chapter 6 Part 1
6-1 CHAPTER 6 ACCOUNTING QUALITY Solutions to Questions, Exercises, Problems, and Teaching Notes to Cases 6.1 Concept of Earnings Quality. Many examples answer this question. For example, a firm that reports earnings dominated by a substantial one-time gain from the […]
978-1337614689 Chapter 6 Part 1
6-1 Chapter 6—Accounting Quality MULTIPLE CHOICE 1. All of the following are true regarding a high quality balance sheet except: a. It should portray the economic resources that can be reasonably expected to generate future economic benefits. b. It should […]
978-1337614689 Chapter 6 Part 2
6-18 © 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6.23 Applying and Interpreting the Earnings Manipulation Model. a. 1998 Constant ……………………………………………………………………………………. (4.840) DSRI: 0.920[($2,060/$31,260)/($1,697/$20,273)] ………………………….. […]
978-1337614689 Chapter 6 Part 2
6-13 © 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3. Managers want to reduce risk in order to create a more optimal lending environment and to […]
978-1337614689 Chapter 7 Part 1
7-1 CHAPTER 7 FINANCING ACTIVITIES Solutions to Questions, Exercises, Problems, and Teaching Notes to Cases 7.1 Common Equity Transactions. Item Common Stock Additional Paid-in Capital Deferred Compensation Retained Earnings Treasury Stock at Cost Total Common Shareholders’ Equity a I I […]
978-1337614689 Chapter 7 Part 1
7-1 Chapter 7—Financing Activities MULTIPLE CHOICE 1. All of the following are primary events that typically lead to changes in book value of shareholders’ equity except: a. Investments by shareholders, usually net cash received by the company at equity issue […]
978-1337614689 Chapter 7 Part 2
Chapter 7 Financing Activities 7-21 c. (1) For both Coca-Cola and Eli Lilly, the options have a 10-year life. (2) The vesting periods are less than the options life. This allows the option holders to have a period of time […]
978-1337614689 Chapter 7 Part 2
7-13 Derivative instruments acquired to hedge exposure to changes in the fair value of an asset or liability are fair value hedges. Fair value hedges are of two general types (1) hedges of a recognized asset or liability, and (2) […]
978-1337614689 Chapter 8 Part 1
8-1 CHAPTER 8 INVESTING ACTIVITIES Solutions to Questions, Exercises, Problems, and Teaching Notes to Cases 8.1 Capitalization versus Expensing Decision. a. The effect in the first year would be an equal decrease in both the numerator (adjusted net income) and […]
978-1337614689 Chapter 8 Part 1
8-1 Chapter 8—Investing Activities MULTIPLE CHOICE 1. An analyst can estimate the average total life of depreciable assets by: a. dividing average depreciable assets by depreciation expense for the year. b. dividing depreciation expense for the year by average depreciable […]
978-1337614689 Chapter 8 Part 2
Chapter 8 Investing Activities 8-16 c. Consolidation worksheet at December 31, 2018: A = elimination of the Investment in Booking account B = elimination of the Booking’s shareholders’ equity accounts C = allocation of the fair value excesses at the […]
978-1337614689 Chapter 8 Part 2
8-17 a. Internally generated intangible assets versus specifically identifiable intangible assets acquired from others b. Amortization and impairment testing ANS: Recommended answer: 1. Firms expense the cost of developing intangibles in the period incurred. The rationale for immediate expensing of […]
978-1337614689 Chapter 9 Part 1
9-1 CHAPTER 9 OPERATING ACTIVITIES Solutions to Questions, Exercises, Problems, and Teaching Notes to Cases 9.1 Delayed Revenue Recognition. The software firm allocates the bundle transaction price to the multiple elements in the bundle based on their relative fair values. […]
978-1337614689 Chapter 9 Part 1
9-1 Chapter 9—Operating Activities MULTIPLE CHOICE 1. The accumulated benefit obligation measures: a. the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels. b. an estimated total […]
978-1337614689 Chapter 9 Part 2
Chapter 9 Operating Activities 9-14 Acquisition of Equipment Assets = Liabilities + Shareholders’ Equity CC AOCI RE Equipment +16,400 Cash (17,500) Purchase Commitment (1,100) Equipment ………………………………………………………………… 16,400 Purchase Commitment ……………………………………………….. 1,100 Cash …………………………………………………………………….. 17,500 Settle Forward Contract Assets = Liabilities […]
978-1337614689 Chapter 9 Part 2
9-18 a. Using the information provided for Global, prepare the company’s journal entry to record income taxes for 2012 and 2011. b. Using the information provided for Global, determine the company‘s effective tax rate for 2012 and 2011. ANS: a. […]