Questions from Financial Accounting

Q: U.S. GAAP requires firms to account for equity investments

U.S. GAAP requires firms to account for equity investments in which ownership is between 20% and 50% using the equity method. Ace Corporation owns 35% of Spear Corporation during 2014. Spear Corporati...

Q: Altman’s bankruptcy prediction model places a coefficient of 3.3 on

Altman’s bankruptcy prediction model places a coefficient of 3.3 on the earnings before interest and taxes divided by total assets variable but a coefficient of only 1.0 on the sales to total assets v...

Q: Prepaid Legal Services (PPD) is a company that sells insurance

Prepaid Legal Services (PPD) is a company that sells insurance for legal expenses. Customers pay premiums in advance for coverage over some specified period. Thus, PPD obtains cash but has unearned re...

Q: Some accounting theorists propose that firms should consolidate any entity in which

Some accounting theorists propose that firms should consolidate any entity in which they have a ‘‘controlling financial interest.’’ Typically, the percentage of equity ownership that one firm has in a...

Q: Choosing the functional currency is a key decision for translating the financial

Choosing the functional currency is a key decision for translating the financial statements of foreign entities of U.S. firms into U.S. dollars. Qing Corporation, a U.S. firm that sells car batteries,...

Q: Identify the exchange rates used to translate income statement and balance sheet

Identify the exchange rates used to translate income statement and balance sheet items when the foreign currency is defined as the functional currency. Discuss the logic for the use of the exchange ra...

Q: When a firm incurs costs on an item to be used in

When a firm incurs costs on an item to be used in operations, management must decide whether to treat the cost as an asset or an expense. Assume that a company used cash to acquire machinery expected...

Q: The three types of costs incurred in oil production are acquisition costs

The three types of costs incurred in oil production are acquisition costs (costs to acquire the oil fields, minus the cost of the land, plus the present value of future cash flows necessary to restore...

Q: Assume that a company needs to acquire a large special-purpose

Assume that a company needs to acquire a large special-purpose materials handling facility. Given that no outside vendor exists for this type of facility and that the company has available engineering...

Q: Caterpillar manufactures heavy machinery and equipment and provides financing for purchases by

Caterpillar manufactures heavy machinery and equipment and provides financing for purchases by its customers. Caterpillar reported sales and interest revenues of $51,324 million for Year 1. The balanc...