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66
CASES
CASE 3-1 CONVENIENCE FOODS
sheet.)
a. 1. The financial statements of the parent and the subsidiary are
2. No. There is noncontrolling interest presented.
3. A moderate increase in inventory balance.
2. Straight-line methods for financial reporting and accelerated methods,
e. 1. Treasury stock is company stock that has been sold and has been bought
back.
2. Kellogg is using the cost method.
3. Treasury stock represents stock that has been sold and bought back and
not retired.
f. 1. The company’s fiscal year normally ends on the Saturday closest to
every sixth year.
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h. Yes. Highly liquid investments with original maturities of three months or less
are considered to be cash equivalents.
2. They must be reviewed for impairment at least annually.
CASE 3-2 THE ENTERTAINMENT COMPANY
(This case provides an opportunity to review the balance sheet).
a. 1. The financial statements of the parent and the subsidiary are
consolidated.
2. The majority-owned and controlled subsidiaries were consolidated.
b. 1.
$5,784,000,000
326,000,000
$6,110,000,000
2.
The receivables have increased materially.
c. 1.
Yes.
2,180
=
61% increase
1,350
2.
No. Land will never be depreciated. Projects in progress will be
depreciated when completed.
d. 1.
$69,206,000,000
2.
$12,225,000,000
3.
$1,442,000,000
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e. Management makes estimates and assumption that affect the amounts
reported in the financial statements and footnotes thereto.
g. Yes. Original maturities of three months or less.
h. Revenue Recognition
1. Broadcast advertising revenues
Recognized when motion pictures are exhibited
4. Merchandise licensing advances and guarantee royalty payments
product is sold by the licensee
go across industries.
i. Treasury stock – A firm creates treasury stock when it repurchases its own
j. Noncontrolling interest reflects the ownership of noncontrolling shareholders in
and consists of fifty-two weeks with the exception that approximately every
six years we have a fifty-three week year.
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CASE 3-3 HEALTH CARE PRODUCTS
(This case provides an opportunity to review liabilities and shareholders’
investment).
a. The financial statements of the parent and the subsidiary are consolidated
b. 1. Obligation in connection with the conclusion of the TAP Pharmaceutical
c. 1.
$1,619,689,876
2.
72,705,928
3.
1,619,689,876
(72,705,928)
1,546,983,948
4. Cost method
CASE 3-4 BEST
a. 1. Receivables
February 26, 2011
$2,348,000,000
February 27, 2010
$2,020,000,00
2. Gross Receivable:
February 26, 2011
$2,348,000,000
Allowances
107,000,000
$2,455,000,000
February 27, 2010
$2,020,000,000
Allowances
$101,000,000
$2,121,000,000
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b. Merchandise inventories
They were not taken at the end of the year; therefore, they are adjusting for
inventory.
c. 1. Consolidated balance sheet
investment in equity securities
2. “We consolidate the financial results of our Europe, China and Mexico
operations on a two-month lag.”
e. “Our fiscal year ends on the Saturday nearest the end of February. Fiscal
2011, 2010 and 2009 each included 52 weeks.”
.
f. Yes. “Cash equivalents consist of money market funds, U.S. Treasury bills,
g. 1. “Accelerated depreciation methods are generally used for income tax
purposes.”
2. “We compute depreciation using the straight-line method over the
estimated useful lives of the assets.”
for taxes.
CASE 3-5 OUR PRINCIPAL ASSET IS OUR PEOPLE
definition of an asset.
b. They are using a broad definition of an asset, recognizing the importance of
people to the firm.
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CASE 3-6 BRAND VALUE
a. SFAC No. 6:
b. As a practical matter, brands would represent a valuable asset. Brands also
c. Brands appear to fall within the definition of an asset presented in SFAC No. 6.
d. A brand purchased would be recognized as an asset. This would be
considered to be objective for valuation purposes.
CASE 3-7 ADVERTISING - ASSET?
a. SFAC No. 6:
b. To be conservative, advertising is not usually recognized as an asset in the
an asset can be found in U.S. accounting. When it is recognized as an asset, it
CASE 3-8 TELECOMMUNICATIONS PART 1
(This case presents an opportunity to review the financial report of a Chinese
a. 1. Prepared in accordance with International Financial Reporting Standards
(IFRS)
material respects.”
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b. Audit Report
1. Three (December 31, 2010, 2009, and 2008)
2. IFRS standards
3. “The Group maintained, in all material respects, effective internal control
(“COSO”).
4. “The Group’s management is responsible for these financial statements, for
5. “We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States).
c. Consolidated Balance Sheet
1. Since this report is being presented to the SEC, it is helpful that it be
translated to U.S.
noncurrent assets and not on current assets.
4. As indicated in (3) above, liabilities usually come after equity with a IFRS
presentation.
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CASE 3-9 GLOBAL HEALTH CARE
a. This maximizes the use of observable inputs and minimizes the use of
unobservable inputs when measuring fair value.
b. Level 1 – Quoted prices in active markets for identical assets or liabilities.
assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity
and that are financial instruments whose values are determined using pricing
c. Level 1 – The Company’s Level 1 assets include equity securities that are
traded in an active exchange market.
market or can be derives principally from or corroborated by observable market
data.
Level 3 – The Company’s Level 3 assets include certain mortgage-backed
approximately 0.4%, of the Company’s investment.
