以下是引用cfaedu在2007-5-13 14:14:00的发言：Question 1
Rocky
Mountain Air Cargo is a privately held commercial aviation company serving the western United States. It publishes financial statements in accordance with U.S. GAAP and uses a fiscal year that matches the calendar year.
Rocky
Mountain was in good financial shape heading into 2003, with assets of $50 million at the beginning of the fiscal year. That year, it earned $3 million in net income and was easily able to maintain its traditional 50 percent dividend payout ratio. However, Rocky
Mountain had a very difficult year in 2004, reporting a loss of $800,000. It managed to pay $1 million in dividends, but the decision to pay dividends in such a weak financial year further undermined the company’s fiscal stability.
Flitenight Air Lines, a publicly-traded aviation firm serving the central and Midwestern United States, wanted to expand its range of service by coordinating its flight schedule with airlines serving different geographic regions of North America. One of these airlines was Rocky Mountain Air Cargo.
To cement the relationship, Flitenight’s CEO, John “Bulldog” Basten, decided to make a significant investment in Rocky Mountain Air Cargo. He was easily able to convince both boards of the wisdom of the deal, and, in his usual brash style, personally negotiated the terms with his counterpart at Rocky
Mountain, Buck Matthews. Flitenight Air Lines acquired a 20 percent stake in Rocky Mountain Air Cargo (with an option to purchase 40 percent more) for $10 million cash. The deal closed on January 1, 2003 and Flitenight accounted for the investment using the equity method.
Basten was not happy to find that he had invested right at the peak of Rocky Mountain’s profitability and wound up with a money-losing airline. He had a difficult conversation with Matthews in early 2005, complaining about the impact of the Rocky
Mountain investment on Flitenight’s financials. Basten pointed out that he had a loss on his books: the original $10 million investment in Rocky
Mountain was carried at only $9,940,000 on Flitenight’s December 31, 2004 balance sheet. Matthews countered that this was just an accounting entry: on a cash basis, Flitenight had a gain of 5 percent on its investment over the two years.
Matthews’ insistence that the investment had earned money for Flitenight did not sit well with Basten. Basten decided that Rocky
Mountain was clearly being mismanaged and concluded it was time to gain control of the company.
Basten assured Neil Glenn, the Chairman of Flitenight’s board, that he could turn Rocky
Mountain around. He promised Glenn that, in 2005, Rocky
Mountain would once again achieve $3 million in earnings and a 50 percent payout ratio. “With those results,” Basten promised Glenn, “our asset accounts will value the Rocky
Mountain investment at $10,240,000 on our December 31, 2005 balance sheet – so we’ll show a gain on our original investment.” Glenn was skeptical of anyone’s ability to turn the airline around so quickly. Even so, Glenn assured Basten, “If it takes you longer to turn it around, at least we’ll have the dividend income on our 2005 cash flow statements.”
Basten notified Matthews and Rocky
Mountain’s board that Flitenight intended to exercise its option. At the direction of Basten and Glenn, Flitenight purchased the additional shares for cash and gained control of Rocky
Mountain on December 31, 2004.
Part 1)
In 2003, Flitenight would reflect its investment in Rocky
Mountain on its income statement by recording:
A) | $300,000. |
B) | $900,000. |
C) | -$200,000. |
D) | $600,000. |
Part 2)
Since the coordination of flight schedules implies a stronger economic link between Rocky
Mountain and Flitenight Air Lines than that implied merely by the ownership percentage, a proportionate consolidation is being considered. Which of the following statements regarding the consolidation method and the proportionate consolidation method is CORRECT?
A) | Both are provisions of U.S. GAAP. |
B) | Both report all of the affiliate’s liabilities on the parent’s balance sheet. |
C) | Both report the same level of assets on the parent’s balance sheet. |
D) | The proportionate consolidation method differs from the consolidation method in its treatment of minority interest. |
Part 3)
If Flitenight were to account for its Rocky Mountain investment using the cost method instead of the equity method, Flitenight’s 2004 income statement would reflect its investment in Rocky Mountain by including which of the following?
A) | Only a loss of $160,000. |
B) | Only income of $200,000. |
C) | Both dividends received by Flitenight from Rocky
Mountain and Flitenight’s share of Rocky
Mountain’s earnings. |
D) | Nothing, since the cost of the acquisition is not adjusted until the asset is sold. |
Part 4)
Which of the following statements about the consolidation method and the equity method is FALSE?
A) | Both result in the same net income. |
B) | Only capital flows between parent and investee (such as dividends) appear in the cash flows of the parent. |
C) | Both result in the same net worth. |
D) | Both result in the same ROE. |
Part 5)
Regarding Basten’s and Matthews’ statements about the gain/loss that Flitenight had at the end of 2004 on its investment in Rocky
Mountain, which is CORRECT?
A) | Basten’s statement is correct and Matthews’ statement is incorrect. |
B) | Basten’s statement is incorrect and Matthews’ statement is incorrect. |
C) | Basten’s statement is incorrect and Matthews’ statement is correct. |
D) | Basten’s statement is correct and Matthews’ statement is correct. |
Part 6)
Regarding Basten’s and Glenn’s statements about the impact of Rocky Mountain on Flitenight’s 2005 balance sheet and cash flow statement, which is CORRECT?
A) | Basten’s statement is incorrect and Matthews’ statement is incorrect. |
B) | Basten’s statement is correct and Matthews’ statement is incorrect. |
C) | Basten’s statement is correct and Matthews’ statement is correct. |
D) | Basten’s statement is incorrect and Matthews’ statement is correct. |
答案如下
发表于 2008-12-10 14:04
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