How does accounts receivable factoring work? What are the benefits to the two parties involved? What are the risks?
> Zimmern Machines sold equipment with a 10-year economic life to Bourdain Acres, while concurrently entering into an 8-year leaseback. Eight years is considered a major part of the economic life of the equipment. The sale agreement contains no option for
> Where can we find authoritative guidance for accounting for leases under IFRS?
> On January 1, a company issued 7%, 15-year bonds with a face amount of $90 million for $82,218,585 to yield 8%. Interest is paid semiannually. What was interest expense at the effective interest rate on June 30, the first interest date?
> Holiday Brands issued $30 million of 6%, 30-year bonds for $27.5 million. What is the amount of interest that Holiday will pay semiannually to bondholders?
> Air Supply issued $6 million of 9%, 10-year convertible bonds at 101. The bonds are convertible into 24,000 shares of common stock. Bonds that are similar in all respects except that they are nonconvertible, currently are selling at 99 (that is, 99% of f
> Long-term debt can be reported either (a) As a single amount, net of any discount or increased by any premiumor (b) At its face amount accompanied by a separate valuation account for the discount or premium. Any portionof the debt to be paid during the u
> Identify two important variables to be considered when making an investment decision.
> Skill Hardware is the plaintiff in a $16 million lawsuit filed against a supplier. The litigation is in final appeal and legal counsel advises that it is virtually certain that Skill will win the lawsuit and be awarded $12 million. How should Skill accou
> Fleener Company is in the process of refinancing some long-term debt. Its fiscal year ends on December 31, 2016, and its financial statements will be issued on March 15, 2019. Under current IFRS, how would the debt be classified if the refinancing is com
> Coulson Company is in the process of refinancing some long-term debt. Its fiscal year ends on December 31, 2018, and its financial statements will be issued on March 15, 2019. Under current U.S. GAAP, how would the debt be classified if the refinancing i
> On July 1, Orcas Lab issued a $100,000, 12%, eight-month note. Interest is payable at maturity. What is the amount of interest expense that should be recorded in a year-end adjusting entry if the fiscal year-end is (a) December 31? (b) September 30?
> Long-term obligations usually are reclassified and reported as current liabilities when they become payable within the upcoming year (or operating cycle, if longer than a year). So, a 25-year bond issue is reported as a long-term liability for 24 years b
> When companies have debt that is not due to be paid for several years but that is callable (due on demand) by the creditor, do they classify the debt as current or as long-term?
> Amounts collected for third parties represent liabilities until remitted. Provide several examples of this kind of collection.
> Answer Q 13-27, but assume that you report under IFRS. Q 13-27 You are the plaintiff in a lawsuit. Your legal counsel advises that your eventual victory is inevitable. “You will be awarded $12 million,” your attorney confidently asserts. Describe the ap
> How do U.S. GAAP and IFRS differ in their use of present values when measuring contingent liabilities?
> How do U.S. GAAP and IFRS differ in their treatment of a range of equally likely losses?
> What is the first step in the accounting processing cycle? What role do source documents fulfill in this step?
> Under what circumstances should a loss contingency be accrued?
> Northwest Carburetor Company established a fund in 2015 to accumulate money for a new plant scheduled for construction in 2018. How should this special purpose fund be reported in Northwest’s balance sheet?
> Some financial instruments are called derivatives. Why?
> Superior Company owns 40% of the outstanding stock of Bernard Company. During 2018, Bernard paid a $100,000 cash dividend on its common shares. What effect did this dividend have on Superior’s 2018 financial statements?
> All investments in debt securities are classified for reporting purposes in one of three categories, and can be accounted for differently depending on the classification. What are these three categories?
> Refer to the situation described in BE 11–16. Assume that the fair value of SCC is $44 million instead of $40 million. What amount of impairment loss should WebHelper recognize? In BE 11–16 WebHelper Inc. acquired 100% of the outstanding stock of Silico
> Collison and Ryder Company (C&R) has been experiencing declining market conditions for its sportswear division. Management decided to test the assets of the division for possible impairment. The test revealed the following: book value of division’s asset
> Under U.S. GAAP, litigation costs to successfully defend an intangible right are capitalized and amortized over the remaining useful life of the related intangible. How are these costs typically accounted for under IFRS?
> Define depletion and compare it with depreciation.
> In February 2018, Culverson Company began developing a new software to be sold to customers. The software allows people to enter health information and track daily eating and exercise habits to track their health status. The project was completed in Nove
> What is meant by the phrase efficient allocation of resources? What mechanism fosters the efficient allocation of resources in the United States?
> Indicate whether each of the following assets and liabilities should be classified as current or long-term: (a) accounts receivable; (b) prepaid rent for the next six months; (c) note receivable due in two years; (d) note payable due in 90 days; (e)
> What are the three major sections of the statement of cash flows?
> What is GATT, and what is its goal?
> What are some of the primary advantages when a corporation has operations in countries other than its home country? What are some of the risks?
> What kinds of U.S. companies would benefit most from a stronger dollar in the foreign exchange market? Explain.
> What does it mean when the U.S. dollar weakens in the foreign exchange market?
> What are the pros and cons of commercial paper relative to bank loans for a company seeking short term financing?
> What are compensating balances and why do banks require them from some customers? Under what circumstances would banks be most likely to impose compensating balances?
> What is a Treasury bill? How risky is it?
> Banks like to make short-term, self-liquidating loans to businesses. Why?
> Trade credit is free credit. Do you agree or disagree with this statement? Explain.
> What is trustworthy collateral from the lenders’ perspective? Explain whether accounts receivable and inventory are trustworthy collateral.
> What happens when a bank charges discount interest on a loan?
> Companies with rapidly growing levels of sales do not need to worry about raising funds from outside the firm. Do you agree or disagree with this statement? Explain.
> What are the primary requirements for a successful JIT inventory control system?
> What are the benefits of the JIT inventory control system?
> What are the primary variables being balanced in the EOQ inventory model? Explain
> Inventory is sometimes thought of as a necessary evil. Explain.
> Accounts receivable are sometimes not collected. Why do companies extend trade credit when they could insist on cash for all sales?
> What is an agent? What are the responsibilities of an agent?
> What are the benefits of “paying late” (but not too late) and how do companies attempt to do this?
> What are the benefits of “collecting early” and how do companies attempt to do this?
> What is the difference between pro forma financial statements and a cash budget? Explain why pro forma financial statements are not used to forecast cash needs.
> Explain the factors affecting the choice of a maximum cash balance amount.
> What are the negative consequences of a company holding too much cash?
> Explain the factors affecting the choice of a minimum cash balance amount.
> What are the primary reasons that companies hold cash?
> Can a corporation have too much working capital? Explain.
> What is the primary advantage to a corporation of investing some of its funds in working capital?
> What is accumulated depreciation?
> What is working capital?
> What is the most conservative type of working capital financing plan a company could implement? Explain.
> What are the advantages and disadvantages of the aggressive working capital financing approach?
> What are the risks associated with using a large amount of short-term financing for working capital?
> Explain how a firm determines the optimal level of current assets.
> Explain the bird in the hand theory of cash dividends.
> What is the Modigliani and Miller theory of dividends? Explain.
> What are some of the factors that common stockholders consider when deciding how much, if any, cash dividends they desire from the corporation in which they have invested?
> Are there any legal factors that could restrict a corporation in its attempt to pay cash dividends to common stockholders? Explain.
> Explain the role of cash and of earnings when a corporation is deciding how much, if any, cash dividends to pay to common stockholders.
> Explain how earnings available to common stockholders and common stock dividends paid from the current income statement affect the balance sheet item retained earnings.
> Under what circumstances is a warrant’s value high? Explain.
> Explain why warrants are rarely exercised unless the time to maturity is small?
> How does a preemptive right protect the interests of existing stockholders?
> What does an investment banker do when underwriting a new security issue for a corporation?
> What are the advantages and the disadvantages of a new stock issue?
> How are the members of the board of directors of a corporation chosen and to whom do these board members owe their primary allegiance?
> What are some of the government requirements imposed on a public corporation that are not imposed on a private, closely held corporation?
> How does a mortgage bond compare to a debenture?
> What is a callable bond? What is a puttable bond? How do each of these features affect their respective market interest rates?
> If a convertible bond has a conversion ratio of 20, a face value of $1,000, a coupon rate of 8 percent, and the market price for the company’s stock is $15 per share, what is the convertible bond’s conversion value?
> Which ratios would a potential long-term bond investor be most interested in? Explain. Answer Current and potential lenders of long-term funds, such as banks and bondholders, are interested in debt ratios. When a business's debt ratios increase signifi
> What are some examples of restrictive covenants that might be specified in a bond’s indenture?
> How does a sinking fund function in the retirement of an outstanding bond issue?
> Give two examples of types of companies likely to have high operating leverage.
> Does high operating leverage always mean high business risk? Explain.
> Why is the replacement value of assets method not generally used to value complete businesses?
> All other things held constant, how would the market price of a bond be affected if coupon interest payments were made semiannually instead of annually?
> Describe the general pattern of cash flows from a bond with a positive coupon rate.
> How financing costs are generally incorporated into the capital budgeting analysis process?
> What role does depreciation play in estimating incremental cash flows?
> How do we estimate expected incremental cash flows for a proposed capital budgeting project?
> What are the characteristics of an efficient market?
> What is a sunk cost? Is it relevant when evaluating a proposed capital budgeting project? Explain.
> Why do we focus on cash flows instead of profits when evaluating proposed capital budgeting projects?
> What is the decision rule for accepting or rejecting proposed projects when using internal rate of return?
> What is the decision rule for accepting or rejecting proposed projects when using net present value?
> How does the net present value relate to the value of the firm?
> Explain why we measure a project’s risk as the change in the CV.
> Explain how to measure the firm risk of a capital budgeting project.
> For a given IOS and MCC, how do financial managers decide which proposed capital budgeting projects to accept, and which to reject?
