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Q4. Which of the following statements regarding problems that are commonly encountered in the analysis of a firm’s ffice ffice" />
financial reports is FALSE?
A) Cash flows may be affected by the exclusion of off-balance sheet obligations.
B) Income statement items that may require adjustment include accounting changes, one-time charges and restructuring charges.
C) Adjustments to the income statement that may not be recorded include operating leases, take-or-pay contracts and environmental obligations.
Correct answer is C)
Adjustments to the balance sheet, (not income statement) that may not be recorded include operating leases, take-or-pay contracts and environmental obligations.
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The UNI Company Balance Sheet
As of December 31, 2007
(in millions) |
|
|
2006 |
2007 |
|
|
2006 |
2007 |
|
Cash |
$50 |
$60 |
Accounts payable |
$100 |
$150 |
|
Accounts receivable |
100 |
110 |
Long-term debt |
400 |
300 |
|
Inventory |
200 |
180 |
Common Stock |
50 |
50 |
|
|
Retained earnings |
400 |
500 |
|
Fixed assets (gross) |
800 |
900 |
Total liabilities and equity |
$950 |
$1,000 |
|
Accumulated depreciation |
200 |
250 |
|
|
Fixed assets (net) |
600 |
650 |
|
Total assets |
$950 |
$1,000 |
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The UNI Company Income Statement
For year ended December 31, 2007
(in millions) |
|
|
Sales |
$1,000 |
|
|
Cost of goods sold (COGS) |
600 |
|
|
Depreciation |
50 |
|
|
Selling, general, and administrative expenses (SG&A) |
160 |
|
|
Interest expense |
23 |
|
|
Income before taxes |
$167 |
|
|
Tax |
67 |
|
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Net income |
$100 |
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|
|
|
|
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Additional information:
- UNI uses the last in, first out (LIFO) inventory valuation method. The LIFO reserve is $20 million for 2007 and $10 million for 2006.
- UNI leases equipment. These leases are classified as operating leases and require annual, end-of-year payments of $10 million for each of the next 5 years.
Restating inventory according to first in, first out (FIFO) and capitalizing operating leases using an 8% discount rate results in adjusted total assets of:
A) $1,060 million.
B) $1,050 million.
C) $1,040 million.
Correct answer is A)
PV of lease (PMT = 10; N = 5; I = 8; solve for PV) = $39.93 million
Total adjustment = $39.93 + 20 = $59.93 million
Adjusted total assets = $1,000 + 59.93 = $1,059.93 million
Q5. Adjustments for off-balance-sheet items include all but which of the following?
A) Capitalizing operating leases, including this amount as an asset and a liability.
B) Using the equity method in place of the proportionate consolidation to reflect the investment in affiliates.
C) Estimating the probable obligation for contingent liabilities.
Correct answer is B)
The correct statement is that proportionate consolidation should be used in place of the equity method.
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发表于 2009-3-3 11:08
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