答案和详解如下： Q32. On December 15, 2004, the Zeisler Company faces a financial crisis. Zeisler’s industry has gone into recession and net income has declined to nearly zero. Jeremiah Welch, the company’s CFO, is extremely concerned that, when the final figures for 2004 come in, the poor operating results will throw the firm into violation of its debt covenants, which specify that it must meet a certain return on assets (ROA) and not exceed a certain debt-to-asset ratio. A violation of either covenant would trigger a provision in the lending agreement allowing lenders to put Zeisler’s debt back to the firm and likely force Zeisler into bankruptcy. With only two weeks before the close of the firm’s fiscal year on December 31, there is no way to avoid bankruptcy through improved operations. Welch calls an emergency meeting with Olivia Dupree, the firm’s controller, to come up with a plan of action to keep Zeisler out of bankruptcy. He explains to Dupree that they need to increase Zeigler’s reported ROA and reduce its reported debt-to-assets ratio relative to the numbers that would otherwise be reported for 2004. Dupree suggests that Zeisler’s equity investments might be useful in staving off bankruptcy. Zeisler acquired 100,000 shares of the Market Square Corporation on January 1, 2004, at $25 per share. Market Square paid dividends during 2004 of $1.50 per share and was expected to have earnings for 2004 of $2.50 per share. Zeisler also holds 250,000 shares of General Nuclear, purchased for $72 per share. General Nuclear has no dividends and is expected to report a loss for 2004. Both securities are classified on the financial statements as available-for-sale. Dupree added that Zeisler also holds several million dollars of Market Square’s debt securities, classified as a held-to-maturity investment. The holding in Market Square represents a small fraction of Zeisler’s total fixed-income investments, all of which are also classified as held-to-maturity. The investment in Market Square’s debt differs significantly from Zeisler’s other investments in fixed-income securities in that Market Square’s debt is trading slightly above Zeisler’s cost while Zeisler’s other fixed-income investments are all trading significantly below Zeisler’s cost because of a general increase in market interest rates. Welch points out, however, that even if the firm were to sell all its marketable securities, the proceeds would not be sufficient to pay off the debt and avert bankruptcy. Dupree left the meeting with Welch for a moment to check the stock market. She found that Market Square was trading at $35 per share and General Nuclear was at $43. This new information gave Dupree an idea. Dupree suggested to Welch, “We could reclassify our equity investment in Market Square as trading before year-end. That will help raise our ROA for this year.” Welch pointed out that a reclassification of the equity investment from available-for-sale to trading would reduce Zeisler’s reported net income because the firm would be required to stop including the dividends it receives from Market Square in net income. Welch suggested that, instead of reclassifying Market Square’s equity, they sell Market Square’s debt. That would reduce Zeisler’s debt-to-assets ratio because the unrealized gain in the market value of the Market Square debt would be realized when the security was sold. Dupree added that the firm could also liquidate the General Nuclear investment to raise cash without affecting the firm’s reported ROA for 2004. Welch and Dupree decided to liquidate the two assets to help improve the firm’s financial position. What is the investment income that Zeisler Company will report for the year 2004 on its investment in Market Square Corporation shares if it continues to account for the shares as an available-for-sale investment? A) $200,000. B) $250,000. C) $150,000. Correct answer is C) The investment income for available-for-sale securities includes dividends, interest, and realized gains. In this case, the investment income from Market Square Corporation would be the dividends it paid to the number of shares Zeisler owns: 100,000 shares × $1.50 per share = $150,000. | 
发表于 2009-1-8 10:29
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