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COMPREHENSIVE PROBLEM (Continued)
(c) QUIGLEY CORPORATION
Income Statement
For the Year Ended December 31, 2017
Sales Revenue ................................................
Cost of Goods Sold ........................................
Gross Profit .....................................................
Operating Expenses
Salaries and Wages Expense .....................
Other Operating Expenses .........................
$ 65,000
39,000
$570,000
400,000
170,000
(d) QUIGLEY CORPORATION
Retained Earnings Statement
For the Year Ended December 31, 2017
Balance, January 1 .........................................
Add: Net income ..........................................
$ 75,050
55,750
COMPREHENSIVE PROBLEM (Continued)
(e) QUIGLEY CORPORATION
Balance Sheet
December 31, 2017
Assets
Current assets
Cash ................................................................
Accounts receivable ................................
Less: Allowance for doubtful accounts ............
Inventory ........................................................
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable ..........................................
Dividends payable ................................
$51,000
5,100
$ 55,800
45,900
22,700
$ 19,300
6,750
COMPREHENSIVE PROBLEM (Continued)
Stockholders’ equity
Paid-in capital
Capital stock
6% Preferred stock, $20 par, 1,000 shares issued ...................
Common stock $10 par, 4,000 shares issued,
3,700 shares outstanding ................................................
$ 20,000
40,000
BYP 15-1 FINANCIAL REPORTING PROBLEM
(a) At September 28, 2013, Apple’s total long-term liabilities was $39,793
million. There was a $20,481 million increase ($39,793 – $19,312) in
long-term liabilities during the year.
BYP 15-2 COMPARATIVE ANALYSIS PROBLEM
(a)
PepsiCo
Coca-Cola
1.
Debt to assets
$53,089
$77,478
= 68.5%
*
$56,615
$90,055
= 62.9%
(b) The higher the percentage of debt to assets, the greater the risk that a
company may be unable to meet its maturing obligations. PepsiCo’s
2013 debt to assets ratio was 9% more than Coca-Cola’s and it would
be considered slightly less able to meet its obligations. The times
BYP 15-3 COMPARATIVE ANALYSIS PROBLEM
(a)
Amazon
Wal-Mart
1.
Debt to assets
$30,413*
$40,159
= 75.7%
$123,412**
$204,751
= 60.3%
(b) The higher the percentage of debt to assets, the greater the risk that a
company may be unable to meet its maturing obligations. Amazon’s
2013 debt to assets ratio was 26% more than Wal-Mart’s and it would
BYP 15-4 REAL-WORLD FOCUS
(a) An ‘A’ rating means that the company has a strong capacity to meet
financial commitments, but is somewhat susceptible to adverse
economic conditions and changes in circumstances. A ‘C’ rating
means that a company is currently highly vulnerable due to obligations
and other defined circumstances.
BYP 15-5 DECISION MAKING ACROSS THE ORGANIZATION
(a) Face value of bonds ............................................................ $2,400,000
Proceeds from sale of bonds ($2,400,000 X .95) ................ 2,280,000
Discount on bonds payable ................................................ $ 120,000
Bond discount amortization per year:
(b) 1. Bonds Payable .......................................... 2,400,000
Discount on Bonds Payable ............. 72,000
2. Cash ........................................................... 2,000,000
Bonds Payable ................................... 2,000,000
(c) Dear President Glover:
The early redemption of the 8%, 5-year bonds results in recognizing a
BYP 15-5 (Continued)
1. The cash flow of the company as it relates to bonds payable will be
adversely affected as follows:
Additional cash outflows per year .................................... $ 28,000
2. The amount of interest expense shown on the income statement
will be higher as a result of the decision to issue new bonds:
Annual interest expense on new bonds ...... $220,000
Annual interest expense on 8% bonds:
Interest payment................................... $192,000
BYP 15-6 COMMUNICATION ACTIVITY
To: Sam Masasi
From: I. M. Student
Subject: Bond Financing
(1) The advantages of bond financing over common stock financing include:
1. Stockholder control is not affected.
(2) The types of bonds that may be issued are:
1. Secured or unsecured bonds. Secured bonds have specific assets
of the issuer pledged as collateral. Unsecured bonds are issued
against the general credit of the borrower.
(3) State laws grant corporations the power to issue bonds after formal
approval by the board of directors and stockholders. The terms of the
BYP 15-7 ETHICS CASE
(a) The stakeholders in the Olathe case are:
Ken Iwig, president, founder, and majority stockholder.
Barb Lowery, minority stockholder.
(b) The ethical issues:
The desires of the majority stockholder (Ken Iwig) versus the desires
of the minority stockholders (Barb Lowery and others).
Doing what is right for the company and others versus doing what is best
for oneself.
Questions:
Is what Ken wants to do legal? Is it unethical? Is Ken’s action brash
(c) The rationale provided by the student will be more important than the
specific position because this is a borderline case with no right answer.
BYP 15-8 ALL ABOUT YOU
Results will vary depending on article chose by the student. Some common
signals identified in articles are: bills more than two months in arrears; must
BYP 15-9 FASB CODIFICATION ACTIVITY
(a) Long-term obligations are those scheduled to mature beyond one year
(or the operating cycle, if applicable) from the date of an entity’s balance
sheet.
(b) The Codification provides the following guidance for disclosure of long-
term obligations:
Bonds, mortgages and other long-term debt, including capitalized
lease.
(1) State separately, in the balance sheet or in a note thereto, each
issue or type of obligation and such information as will indicate
(see §210.4–06):
(i) The general character of each type of debt including the rate of
interest;
(2) The amount and terms (including commitment fees and the condi-
tions under which commitments may be withdrawn) of unused
IFRS EXERCISES
IFRS 15-1
The similarities between GAAP and IFRS include: (1) the basic definition of
a liability, and (2) liabilities are normally reported in the order of their
liquidity.
Differences between GAAP and IFRS include: (1) GAAP allows straight line
amortization of bond discounts and premiums, but IFRS requires the
IFRS 15-2
(a) Jan. 1 Cash (€2,000,000 X .97) ........................ 1,940,000
Bonds Payable .............................. 1,940,000
IFRS 15-3
Cash (£4,000,000 X .99) ................................................. 3,960,000
Bonds Payable ....................................................... 3,800,000
Share Premium—Conversion Equity .................... 160,000
IFRS15-4 INTERNATIONAL FINANCIAL REPORTING PROBLEM
(a) Long-term gross borrowings consist of Bonds and Euro Medium Term
Notes, Finance and other long-term leases, and Bank borrowings.
(b) Borrowings are measured at amortized cost, i.e. nominal value net of
premium and issue expenses, which are charged progressively to net
financial income/expense using the effective interest method.
