Question: Lexington Corporation acquired all of the
Lexington Corporation acquired all of the outstanding common stock of Chalfont, Inc., on January 1, Year 1. Lexington gave shares of its no par common stock with a market value of $504 million in exchange for the Chalfont common stock. Chalfont will remain a legally separate entity after the exchange, but Lexington will prepare consolidated financial statements with Chalfont each period. Exhibit 8.24 presents the balance sheets of Lexington and Chalfont on January 1, Year 1, just prior to the acquisition. The market value of Chalfont’s fixed assets exceeds their book value by $80 million. Chalfont owns a copyright with a market value of $50 million. Chalfont is a defendant in a lawsuit that it expects to settle during Year 1 at a cost of $30 million. The firm carries no insurance against such lawsuits. Lexington plans to establish an acquisition reserve for this lawsuit. 
REQUIRED: a. Prepare a schedule that shows the allocation of the consideration given to individual assets and liabilities under the acquisition method. Ignore deferred tax effects. b. Prepare a consolidated balance sheet for Lexington and Chalfont on January 1, Year 1. Show your supporting calculations for any amount that is not simply the sum of the amounts for Lexington and Chalfont from their separate financial records
> Given the following information, compute December 31, Year 1, projected benefit obligation (PBO) and fair market value (FMV) of plan assets for Lee Company. What amount of asset or liability will be reported on the balance sheet at December 31, Year 1?
> 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, formed a wholly owned subsidiary in Mexico to manufac
> 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. Spear Corporation reported net income of $100.4 million and declared and paid div
> Firms invest in marketable securities for a variety of reasons, one of the most common being the need to temporarily invest excess cash. Describe how to account for these investments on the balance sheet and in comprehensive income assuming that they are
> Assume Swift Company acquires a machine with a fair value of $100,000 on January 1 of Year 1 by signing a five-year lease. Swift must make payments of $16,275 each December 31. The appropriate interest rate on the lease is 10%. Compute the following assu
> Rock of Ages, Inc., a large North American integrated granite quarrier, manufacturer, and retailer of finished granite memorials, reported a Year 4 net loss of $3.2 million. In that year, the firm reported a pretax litigation settlement loss of $6.5 mill
> Checkpoint Systems, a leading provider of source tagging, handheld labeling systems, retail merchandising systems, and bar-code labeling systems, stated the following in a press release: GAAP reported net loss for the fourth quarter of Year 4 was $29.3 m
> A firm’s income tax return shows income taxes for 2020 of $35,000. The firm reports deferred tax assets before any valuation allowance of $24,600 at the beginning of 2020 and $27,200 at the end of 2020. It reports deferred tax liabilities of $18,900 at t
> A firm’s income tax return shows $50,000 of income taxes owed for 2020. For financial reporting, the firm reports deferred tax assets of $42,900 at the beginning of 2020 and $38,700 at the end of 2020. It reports deferred tax liabilities of $28,600 at th
> Fair Value Measurement and Other Comprehensive Income For its fiscal year ended February 1, 2020, Zumiez, Inc. shows a line item for $1.059 million labeled “Net change in unrealized gain on available-for-sale debt securities” as part of other comprehensi
> Massachusetts Stove Company manufactures wood-burning stoves for the heating of homes and businesses. The company has approached you, as chief lending officer for the Massachusetts Regional Bank, seeking to increase its loan from the current level of $93
> Using the following key, identify the effects of the following transactions or conditions on the various financial statement elements: I 5 increases; D 5 decreases; NE 5 no effect.
> Sony Corporation manufactures and markets consumer electronics products. Assume the following are selected income statement data for 2021 and 2022 (amounts in billions of yen): Required: a. Estimate the variable cost as a percentage of sales for the cos
> The data in Exhibit 11.3 on industry median betas suggest that firms in the following three sets of related industries have different degrees of systematic risk. REQUIRED: a. For each matched pair of industries, describe factors that characterize a typ
> Intel is a global leader in manufacturing microprocessors, which is very capital-intensive. The production processes in microprocessor manufacturing require sophisticated technology, and the technology changes rapidly, particularly with each new generati
> The Home Depot is a leading specialty retailer of hardware and home improvement products and is the second-largest retail store chain in the United States. It operates large warehouse-style stores. Assume in 2021 and 2022, The Home Depot invested in five
> Gap Inc. Operates chains of retail clothing stores under the names of Gap, Banana Republic, and Old Navy. Exhibit 3.19 presents the statement of cash flows for Gap for Year 0 to Year 4 REQUIRED: Discuss the relations between net income and cash flow fro
> Tesla Motors Manufactures high-performance electric vehicles that are extremely slick looking. Exhibit 3.18 presents the statement of cash flows for Tesla Motors for Year 1 through Year 3. REQUIRED Discuss the relations among net income, cash flows fro
> Refer to the financial statement data for Abercrombie & Fitch in Problem 4.25 in Chapter 4. Exhibit 5.15 presents risk ratios for Abercrombie & Fitch for fiscal Year 3 and Year 4. Data from Problem 4.25 in Chapter 4: Abercrombie & Fitch sell
> The financial statements of ABC Corporation, a retail chain, reveal the information for income taxes shown in Exhibit 2.11. REQUIRED a. Assuming that ABC had no significant permanent differences between book income and taxable income, did income befor
> Refer to the financial statement data for Hasbro in Problem 4.24 in Chapter 4. Exhibit 5.14 presents risk ratios for Hasbro for Year 2 and Year 3. LO 5-3, LO 5-4 LO 5-6 LO 5-7 LO 5-6 LO 5-3, LO 5-4 Data from Problem 4.24 in Chapter 4: Hasbro is a leadin
> Exhibit 5.26 presents risk ratios for Walmart for 2019 and 2018. Exhibits 1.19, 1.20, and 1.21 in Chapter 1 present the financial statements for Walmart. REQUIRED a. Compute the values of each of the ratios in Exhibit 5.26 for Walmart for 2020. Walmar
> ALFA Romeo incurs direct cash costs of $30,000 in manufacturing a red convertible automobile during 2018. Assume that it incurs all of these costs in cash. Alfa Romeo sells this automobile to you on January 1, 2019, for $45,000. You pay $5,000 immediatel
> Assume Southern Copper Corporation (SCCO) acquired mining equipment for $100,000 cash on January 1, 2018. The equipment had an expected useful life of four years and zero salvage value. SCCO calculates depreciation using the straight-line method over the
> Refer to Problem 2.13. Assume that Walmart has accounted for the value of the land at acquisition cost and sells the land on December 31, 2020, for a two-year note receivable with a present value of $180,000 instead of for cash. The note bears interest a
> Assume Walmart acquires a tract of land on January 1, 2018, for $100,000 cash. On December 31, 2018, the current market value of the land is $150,000. On December 31, 2019, the current market value of the land is $120,000. The firm sells the land on Dece
> In this chapter, we evaluated shares of common equity in Clorox using the value-to-book approach, market multiples, and reverse engineering. The Coca-Cola Company is also a company that sells well-known brand name consumer goods (although the two compan
> The Coca-Cola Company is a global soft-drink beverage company. The data in Chapter 12, Exhibits 12.14 through 12.16, include the actual amounts for 2020 and projected amounts for Year 11 to Year 16 for the income statements, balance sheets, and statement
> The Coca-Cola Company is a global soft drink beverage company (ticker: KO). The data in Chapter 12’s Exhibits 12.14, 12.15, and 12.16 (pages 712–715) include the actual amounts for 2020 and projected amounts for Year 11 to Year 16 for the income statemen
> Suppose the following hypothetical data represent total assets, book value, and market value of common shareholders’ equity (dollar amounts in millions) for Microsoft, Intel, and Dell, three firms involved in different aspects of the co
> The Coca-Cola Company is a global soft drink beverage company (ticker symbol = KO). The data in Exhibits 12.14 to 12.16 include the actual amounts for fiscal 2020 and projected amounts for Year +1 to Year +6 for the income statements, balance sheets, and
> The 3M Company is a global diversified technology company active in the following product markets: consumer and office; display and graphics; electronics and communications; health care; industrial; safety, security, and protection services; and transpor
> Walmart Stores (Walmart) is the world’s largest retailer. It employs an “everyday low price” strategy and operates stores as three business segments: Walmart U.S., International, and Samâ€&
> The Coca-Cola Company is a global soft drink beverage company (ticker: KO). The following data for Coca-Cola include the actual amounts for Year 0 and the projected amounts for Years 11 through 15 for comprehensive income and common shareholdersâ&#
> Barnes & Noble sells books, magazines, music, and videos through retail stores and online. For a retailer like Barnes & Noble, inventory is a critical element of the business, and it is necessary to carry a wide array of titles. Inventories constitute th
> Hasbro designs, manufactures, and markets toys and games for children and adults in the United States and in international markets. Hasbro’s portfolio of brands and products contains some of the most well-known toys and games under famous brands such as
> The following is an excerpt from Note 13 (Pensions and Other Post-Employment Benefits) to the 2020 Consolidated Financial Statements of Coca-Cola Company (Coca-Cola): REQUIRED: a. Write a memorandum explaining the change in the net pension liability in
> The following are excerpts from Note 14 (Income Taxes) to the 2020 Consolidated Financial Statements of Coca-Cola Company (Coca-Cola): A reconciliation of the statutory U.S. federal tax rate and our effective tax rate is as follows: REQUIRED: a. Does Co
> Kentucky Gold (KG) holds 10,000 gallons of whis key in inventory on October 31, Year 1, that costs $225 per gallon. KG contemplates selling the whiskey on March 31, Year 2, when it completes the aging process. Uncertainty about the selling price of whisk
> Lynn Construction enters into a firm purchase commitment for equipment to be delivered on June 30, Year 1, for a price of £10,000. It simultaneously signs a forward foreign exchange contract for £10,000. The forward rate on June 30, Year 1, for settlemen
> Following information relates to a firm’s pension plan. REQUIRED: a. Compute the December 31, Year 1, PBO and FMV of pension assets. b. Compute Year 1 pension expense. c. Use the financial statements effects template to show the eff
> A large manufacturer of truck and car tires recently changed its cost-flow assumption method for inventories at the beginning of Year 2. The manufacturer has been in operation for almost 40 years, and for the last decade it has reported moderate growth i
> Deere & Company manufactures agricultural and industrial equipment and provides financing services for its independent dealers and their retail customers. In Note 2 to its October 31, Year 12, Form 10-K, Deere discloses the following revenue recognition
> Prime Contractors (Prime) is a privately owned company that contracts with the U.S. government to provide various services under multiyear (usually five-year) contracts. Its principal services are as follows: Refuse: Picks up and disposes of refuse from
> On January 1, Year 1, assume that Turner Construction Company agreed to construct an observatory for Dartmouth College for $120 million. Dartmouth College must pay $60 million upon signing and $30 million in Year 2 and Year 3. Expected construction costs
> Foreign Sub is a wholly owned subsidiary of U.S. Domestic Corporation. U.S. Domestic Corporation acquired the subsidiary several years ago. The financial statements for Foreign Sub for Year 2 in its own currency appear in Exhibit 8.31. LO 8-6 December 31
> Exhibit 8.28 presents the separate financial statements at December 31, Year 2, of Prestige Resorts and its 80%-owned subsidiary Booking, Inc. Two years earlier on January 1, Year 1, Prestige acquired 80% of the common shares of B
> On December 31, Year 1, Pace Co. paid $3,000,000 to Sanders Corp. shareholders to acquire 100% of the net assets of Sanders Corp. Pace Co. also agreed to pay former Sanders shareholders $200,000 in cash if certain earnings projections were achieved over
> Ormond Co. acquired all of the outstanding common stock of Daytona Co. on January 1, Year 1. Ormond Co. gave shares of its common stock with a fair value of $312 million in exchange for 100% of the Daytona Co. common stock. Daytona Co. will remain a lega
> Bed and Breakfast (B&B), an Italian company operating in the Tuscany region, follows IFRS and has made the choice to premeasure long-lived assets at fair value. B&B purchased land in Year 1 for €150,000. At December 31 of the next four years, the land is
> Floral Delivery, Inc. (FD) acquired a fleet of vans on January 1, 2021, by issuing a $500,000, four-year, 4% fixed rate note, with interest payable annually on December 3. FD has the option to repay the note prior to maturity at the note’s fair value. FD
> Exhibits 7.14 and 7.15 provide footnote excerpts to the financial reports of The Coca-Cola Company and Eli Lilly and Company that discuss the stock option grants given to the employees of the two firms. Each firm uses options extensively to reward employ
> Eli Lilly and Company Produces pharmaceutical products for humans and animals. Exhibit 7.15 includes a footnote excerpt from the annual report of Lilly for the period ending December 31, Year 4. REQUIRED: Review Exhibits 7.15 and answer the following qu
> Refer to financial statements for Walmart in Exhibit 1.19 (Balance Sheets), Exhibit 1.20 (Statements of Income), and Exhibit 1.22 (Statement of Cash Flows). Exhibit 1.19: Exhibit 1.20: Exhibit 1.22: REQUIRED a. Explain why depreciation and amortiza
> Exhibit 7.14 includes a footnote excerpt from the annual report of The Coca-Cola Company for Year 4. The beverage company offers stock options to key employees under plans approved by stockholders. REQUIRED: Review Exhibit 7.14 and answer the followin
> On January 1 of Year 1, Baylor Company needs to acquire an industrial drilling machine that has a five-year life. Baylor could borrow funds and buy the machine outright for $50,000 or it could lease it from Gonzaga Financial by making annual end-of-the-y
> Exhibits 6.17–6.19 present the December 31, 2019, Consolidated Statements of Income, Statements of Comprehensive Income, Consolidated Statements of Cash Flows for Chipotle Mexican Grill, Inc. Notes 5 and 6 to the financial statements pr
> Socket Mobile develops and deploys bar-code-enabled mobile apps, cordless bar-code scanners, and contactless reading and writing devices to enable data capture. Its primary revenue source is the servicing of firms in the specialty retailer, field service
> Exhibit 6.16 presents the Consolidated Statements for Income of Harley-Davidson, Inc., and Note 3 describes restructuring expenses. NOTE: 3 Accompanying HARLEY-DAVIDSON, INC. December 31, 2019, Consolidated Financial Statements 3. Restructuring Expense
> Diviney Company wants to raise $50 million cash but for various reasons does not want to do so in a way that results in a newly recorded liability. The firm is sufficiently solvent and profitable, so its bank is willing to lend up to $50 million at the p
> Delta Air Lines, Inc., is one of the largest airlines in the United States. It has operated on the verge of bankruptcy for several years. Exhibit 5.17 presents selected financial data for Delta Air Lines for each of the five years ending December 31, 200
> Exhibit 5.16 presents risk ratios for Coca-Cola for Year 1 through Year 3. REQUIRED a. Assess the changes in the short-term liquidity risk of Coca-Cola between Year 1 and Year 3. b. Assess the changes in the long-term solvency risk of Coca-Cola betwe
> Abercrombie & Fitch sells casual apparel and personal care products for men, women, and children through retail stores located primarily in shopping malls. Its fiscal year ends January 31 of each year. Financial statements for Abercrombie & Fitch
> The following are summary financial data for three well-known companies—American Airlines, Amazon, and The Home Depot. Based on your awareness of these companies and the economic events surrounding the COVID-19 pandemic that
> Exhibits 1.19–1.22 of Integrative Case 1.1 (Chapter 1) present the financial statements for Walmart for 2019–2021. In addition, the website for this text contains Walmart’s January 31, 2021, Form 10-K
> Analyzing the profitability of restaurants requires consideration of their strategies with respect to ownership of restaurants versus franchising. Firms that own and operate their restaurants report the assets and financing of those restaurants on their
> Selected data for General Mills for Year 1, Year 2, and Year 3 appear below (amounts in millions). REQUIRED a. Compute the rate of ROCE for Year 1, Year 2, and Year 3. b. Compute basic EPS for Year 1, Year 2, and Year 3. c. Interpret the changes in RO
> Sirius XM Radio Inc. is a satellite radio company, formed from the merger of Sirius and XM in 2008. Exhibit 3.20 presents a statement of cash flows for Sirius XM Radio for 2006, 2007, and 2008. Sirius XM and its predecessor, Sirius, realized revenue grow
> Aer Lingus is an international airline based in Ireland. Exhibit 3.24 provides the statement of cash flows for Year 1 and Year 2, which includes a footnote from the financial statements. Year 2 was characterized by weakening consumer demand for air trave
> The Apollo Group is one of the largest providers of private education and runs numerous programs and services, including the University of Phoenix. Exhibit 3.23 provides statements of cash flows for Year 1 through Year 3. REQUIRED Discuss the relation
> Montgomery Ward operates a retail department store chain. It filed for bankruptcy during the first quarter of Year 12. Exhibit 3.22 presents a statement of cash flows for Montgomery Ward for Year 7 to Year 11. The firm acquired Lechmere, a discount reta
> Sunbeam Corporation manufactures and sells a variety of small household appliances, including toasters, food processors, and waffle grills. Exhibit 3.21 presents a statement of cash flows for Sunbeam for Year 5, Year 6, and Year 7. After experiencing de
> Using the analytical framework, indicate the effect of each of the three independent sets of transactions described next. (1) a. January 15, 2018: Purchased marketable debt securities for $100,000. b. December 31, 2018: Revalued the marketable securiti
> In Integrative Case 10.1, we projected financial statements for Walmart Stores for Years 11 through 15. The data in Chapter 12, Exhibits 12.17 through 12.19, include the actual amounts for 2020 and the projected amounts for Year 11 to Year 16 for the inc
> Residual Income Valuation of Walmart’s Common Equity In Integrative Case 10.1, we projected financial statements for Walmart Stores, Inc. (Walmart), for Years 11 through 15. The data in Chapter 12’s Exhibits 12.17, 12.
> Nike, Inc.’s principal business activity involves the design, development, and worldwide marketing of athletic footwear, apparel, equipment, accessories, and services for serious and recreational athletes. Nike boasts that it is the lar
> Holmes Corporation is a leading designer and manufacturer of material handling and processing equipment for heavy industry in the United States and abroad. Its sales have more than doubled, and its earnings have increased more than sixfold in the past fi
> In Integrative Case 10.1, we projected financial statements for Walmart Stores, Inc. (Walmart), for Years +1 through +5. In this portion of the Walmart Integrative Case, we use the projected financial statements from Integrative Case 10.1 and apply the t
> Integrative Case 10.1 involves projecting financial statements for Walmart for Years 11 through 15. The following data for Walmart include the actual amounts for fiscal 2020 and the projected amounts for Years 11 through 15 for comprehensive income and c
> Since the early 1990s, woodstove sales have declined from 1,200,000 units per year to approximately 100,000 units per year. The decline has occurred because of (1) stringent new federal EPA regulations, which set maximum limits on stove emissions beginni
> Walmart Stores, Inc. (Walmart) is the largest retailing firm in the world. Building on a base of discount stores, Walmart has expanded into warehouse clubs and Supercenters, which sell traditional discount store items and grocery products. Exhibits 10.10
> The website for this text contains Walmart’s January 31, 2021, Form 10-K. You should read the management discussion and analysis (MD&A), financial statements, and notes to the financial statements, especially Note 1, “Summary of Significant Accounting Po
> Walmart makes significant investments in operating capacity, primarily via investments in property, plant, and equipment, but also via investments in wholly and partially owned subsidiaries. Walmart also has significant non-U.S. operations in its Walmart
> As you learned in the first two steps of the six-step financial statement analysis and valuation process, a firm’s financing activity is greatly influenced by industry economics and strategy, especially its stage within its life cycle. Early-stage firms
> Arbortech, a designer, manufacturer, and marketer of PC cards for computers, printers, telecommunications equipment, and equipment diagnostic systems, was the darling of Wall Street during Year 6. Its common stock price was the leading gainer for the yea
> Citigroup Inc. (Citi) is a leading global financial services company with more than 200 million customer accounts and operations in more than 140 countries. Its operating units Citicorp and Citi Holdings provide a broad range of financial products and se
> The first case at the end of this chapter and numerous subsequent chapters is a series of integrative cases involving Walmart, Inc. (Walmart). The series of cases applies the concepts and analytical tools discussed in each chapter to Walmartâ€
> Diamond Bank expects that the Singapore dollar will depreciate against the U.S. dollar from its spot rate of $0.43 to $0.42 in 60 days. The following interbank lending and borrowing rates exist: Diamond Bank considers borrowing 10 million Singapore doll
> Blue Demon Bank expects that the Mexican peso will depreciate against the dollar from its spot rate of $0.15 to $0.14 in 10 days. The following interbank lending and borrowing rates exist: Assume that Blue Demon Bank has a borrowing capacity of either $
> Assume that the U.S. inflation rate becomes high relative to Canadian inflation. Other things being equal, how should this affect (a) the U.S. demand for Canadian dollars, (b) the supply of Canadian dollars for sale, and (c) the equilibrium value of t
> Assume that the United States invests heavily in government and corporate securities of Country K. In addition, residents of Country K invest heavily in the United States. Approximately $10 billion worth of investment transactions occur between these two
> Mexico tends to have much higher inflation than the United States as well as much higher interest rates than the United States. Inflation and interest rates are much more volatile in Mexico than in industrialized countries. The value of the Mexican peso
> Tarheel Co. plans to determine how changes in U.S. and Mexican real interest rates will affect the value of the U.S. dollar. (See Appendix C for the basics of regression analysis.) a. Describe a regression model that could be used to achieve this purpos
> How do you think weaker U.S. economic conditions could affect capital flows? If capital flows are affected, how would this influence the value of the dollar (holding other factors constant)?
> Why do you think most crises in countries cause the local currency to weaken abruptly? Is it because of trade flows or capital flows
> If Asian countries experience a decline in economic growth (and experience a decline in inflation and interest rates as a result), how will their currency values (relative to the U.S. dollar) be affected?
> Analysts commonly attribute the appreciation of a currency to expectations that economic conditions will strengthen. Yet, this chapter suggests that when other factors are held constant, increased national income could increase imports and cause the loca
> On August 26, 1998, the day that Russia decided to let the ruble float freely, the ruble declined by about 50 percent. N the following day, called bloody Thursday, stock markets around the world (including the U.S.) declined by more than 4 percent. Why d
> In some historical periods, Brazil’s inflation rate has been very high. Explain why this places pressure on the Brazilian currency
> Explain why the value of the British pound against the dollar will not always move in tandem with the value of the euro against the dollar.
