On October 15, 1990, United Airlines (UAL Corporation) placed the largest wide-body aircraft order in commercial aviation history—60 Boeing 747-400s and 68 Boeing 777s—with an estimated value of $22 billion. With this order, United became the launch customer for the B777. This order was equally split between firm orders and options. Required a. Comment on when United Airlines should record the purchase of these planes. b. Comment on when Boeing should record the revenue from selling these planes. c. Speculate on how firm the commitment was on the part of United Airlines to accept delivery of these planes. d. 1. Speculate on the disclosure for this order in the 1990 financial statements and notes of United Airlines. 2. Speculate on the disclosure for this order in the 1990 annual report of United Airlines. (Exclude the financial statements and notes.) e. 1. Speculate on the disclosure for this order in the 1990 financial statements and notes of Boeing. 2. Speculate on the disclosure for this order in the 1990 annual report of Boeing. (Exclude the financial statements and notes.)
> The budget for a state or local government is not as binding as a budget for a commercial business. Comment.
> How many funds will be used by a state or local Government?
> The accounting for governments is centered on the entity concept and the efficiency of the entity. Comment.
> Do not-for-profit organizations, other than governments, use fund accounting? Comment.
> No estimate or subjectivity is allowed in the preparation of financial statements. Discuss.
> List some objectives that could be incorporated into the financial reporting of a professional accounting organization.
> If quoted market prices are not available, a personal financial statement cannot be prepared. Comment.
> Give examples of disclosure in notes with personal financial statements.
> List some sources of information that may be available when preparing personal financial statements.
> Is the concept of working capital used with personal financial statements? Comment.
> GAAP as they apply to personal financial statements use the cash basis. Comment.
> For governmental accounting, define the following types of funds: 1. General fund 2. Proprietary fund 3. Fiduciary fund
> Why must the user be cautious in analyzing bank holding companies?
> To what agencies and other users of financial statements must banks report?
> Why are banks concerned with their loans/deposits ratios?
> Discuss why the concept of full disclosure is difficult to apply.
> Why are savings accounts liabilities for banks?
> Why are loans, which are usually liabilities, treated as assets for banks?
> What are the main sources of revenue for banks?
> Insurance companies tend to have a stock market price at a discount to the average market price (price/ earnings ratio). Indicate some perceived reasons for this relatively low price/earnings ratio.
> Insurance industry-specific financial ratios are usually prepared from financial statements prepared under what standards?
> Briefly describe the unique aspects of revenue recognition for an insurance company.
> Briefly describe the difference between accounting for intangibles for an insurance company under GAAP and under SAP?
> For an insurance company, describe the difference between GAAP reporting and SAP reporting of deferred policy acquisition costs?
> Why could an insurance company with substantial investments in real estate represent a risk?
> Annual reports that insurance companies issue to the public are in accordance with what accounting standards?
> The consistency concept requires the entity to give the same treatment to comparable transactions from period to period. Under what circumstances can an entity change its accounting methods, provided it makes full disclosure?
> Are annual reports filed with state insurance departments in accordance with U.S. GAAP?
> Explain how the publication Financial Analysis of the Motor Carrier Industry could be used to determine the percentage of total revenue a firm has in relation to similar trucking firms?
> How is the passenger load factor of a bus company related to profitability?
> If a transportation firm shows a rise in revenue per passenger mile, what does this increase imply?
> In a transportation firm, what types of things will change operating revenues? Operating expenses?
> Briefly describe the revenue section of the income statement for a transportation firm?
> What is the most important category of assets for transportation firms?
> What type of ratio is operating revenue to operating property? Will it exceed 1:1 for a utility?
> Is it more desirable to have the operating ratios increasing or decreasing for utilities and transportation companies?
> Oil and gas companies must disclose quantity estimates for proved oil and gas reserves and the major factors causing changes in these resource estimates. Briefly indicate why this disclosure can be significant.
> The matching concept involves the determination of when to recognize the costs associated with the revenue that is being recognized. For some costs, such as administrative costs, the matching concept is difficult to apply. Comment on when it is difficult
> Some industries described in this chapter are controlled by federal regulatory agencies. How does this affect their accounting systems?
> Differentiate between successful-efforts and full costing accounting as applied to the oil and gas industry.
> For regulated utilities, describe the income statement accounts, allowance for equity funds used during construction, and allowance for borrowed funds used during construction?
> For regulated utilities, are current liabilities usually presented first in utility reporting? Comment.
> Is times interest earned meaningful for utilities? Why or why not?
> What does the funded debt to operating property ratio measure for a utility?
> Are inventory ratios meaningful for utilities? Why?
> For regulated utilities, why are plant and equipment usually listed first for utilities?
> How does demand for utilities differ from demand for other products or services?
> Utilities are usually very highly leveraged. How is it that they are able to carry such high levels of debt?
> There are other acceptable methods of recognizing revenue when the point of sale is not acceptable. List and discuss the other methods reviewed in this chapter, and indicate when they can be used.
> Why review the note that describes commitments and contingent liabilities for a bank?
> Why could a review of savings deposit balances be important when reviewing a bank’s financial statements?
> Why review the disclosure of nonperforming assets for banks?
> Why review the disclosure of allowance for loan losses for a bank?
> Why review the disclosure of foreign loans for banks?
> Why review the disclosure of the market value of investments versus the book amount of investments for banks?
> What type of ratio is deposits times capital?
> What does the loan loss coverage ratio measure?
> Why are banks concerned about the percentage of earning assets to total assets?
> What ratios are used to indicate profitability for banks?
> Inventory that has a market value below the historical cost should be written down in order to recognize a loss. Comment
> What does the ratio total deposits times capital measure?
> What is usually the biggest expense item for a bank?
> For regulated utilities, why review the account Construction Work in Progress?
> Give an example of why a review of bank assets may indicate risk or opportunity of which you were not aware?
> Real estate companies contend that conventional accounting does not recognize the underlying value of the property and that this misleads investors. Discuss.
> For oil and gas companies, there is the potential for a significant difference between the reported income and cash flows from operations. Comment.
> When reviewing the financial statements of oil and gas companies, why is it important to note the method of costing (expensing) exploration and production costs?
> List the sections of annual reports where ratios are most frequently located, in order of use.
> Financial ratios are used extensively in annual reports to interpret and explain financial statements. Comment.
> CPAs regard which two financial ratios as the most significant? The highest rated profitability ratio? The highest debt ratio?
> An arbitrary write-off of inventory can be justified under the conservatism concept. Is this statement true or false? Discuss.
> List the top five financial ratios included in corporate objectives according to the study reviewed in this book. Indicate what each of these ratios primarily measures.
> Corporate controllers regard profitability financial ratios as very significant. Comment.
> Which two financial ratios do commercial loan officers regard as the most significant? Which two financial ratios appear most frequently in loan agreements?
> Commercial loan officers regard profitability financial ratios as very significant. Comment.
> It appears that most restatements are symptomatic of financial reporting fraud. Comment.
> We are interested in the future when valuing the stock equity of a company. Therefore, traditional financial statements are of little use in this endeavor. Comment.
> Comment on the importance of an assessment of company management when valuing a company from the perspective of analysts and fund managers.
> Multipored discounted valuation models do not seem to play a significant role in analysts’ normal valuation activity. Comment.
> The use of multiples and conventional financial reports is not well accepted by the traditional financial literature or many valuation books. Comment
> In valuation of stock equity, fundamental analysis makes extensive use of multipored discounted cash flow. Comment.
> In some countries where inflation has been material, an effort has been made to retain the significance of money as a measuring unit by adjusting the financial statements by an inflation factor. Can an accurate adjustment for inflation be made to the sta
> Describe a proper management of earnings. Describe an improper management of earnings.
> CFAs gave liquidity ratios a high significance rating. Comment.
> The surveyed CFAs gave the highest significance rating to which type of financial ratio?
> Indicate two possible problems with a pie graph for accounting data.
> List two things that can make a line graph misleading.
> List four popular forms of graphs used by accountants.
> You are the auditor of Pied more Corporation. You determine that the accounts receivable turnover has been much slower this period than in prior periods and that it is also materially lower than the industry average. How might this situation affect your
> No conclusive model has been developed to forecast financial failure. This indicates that financial ratios are not helpful in forecasting financial failure. Comment.
> Indicate a practical problem with computing a Z score for a closely held firm.
> What does a Z score below 2.675 indicate, according to the Altman model?
> Countries have had problems with the stability of their money. Briefly describe the problem caused for financial statements when money does not hold a stable value.
> According to the Beaver study, three current asset accounts should be given particular attention in order to forecast financial failure. List each of these accounts and indicate whether they should be abnormally high or low.
> According to the Beaver study, which ratios should be watched most closely, in order of their predictive power?
> Describe what is meant by a firm’s financial failure.
> All firms are required to expense R&D costs incurred each period. Some firms spend very large sums on R&D, while others spend little or nothing on this area. Why is it important to observe whether a firm has substantial or immaterial R&D expenses?
> Indicate which of the following accounting policies are conservative by placing an X under Yes or No. Assume inflationary conditions exist. Conservative Yes No a. LIFO inventory b. FIFO inventory c. Completed-contract method d. Percentage-of-completi
> What types of accounting policies are described as conservative?
> The study of annual reports reviewed in this chapter showed that earnings per share was disclosed in every annual report. Why?
