Q48. Joseph Haggs, CFA, is an analyst working for Garvess Jones, a large publicly traded investment-baking firm. Haggs covers
the Internet sector. Recently, one of the more successful companies Haggs covers, Simpson Corporation, made an
aggressive move to acquire another Internet company, Bailey Corporation (BC). BC is a company specializing in graphics and
animation on the World Wide Web and has 1,000,000 shares outstanding. Simpson also holds minimal investments in other
technology companies both public and private. In 1999 Simpson saw an opportunity to substantially increase its share in BC.
Simpson feels that their sophisticated animation can greatly improve Simpson's market share and sees an acquisition as an
opportunity to expand their business. The relevant financial data are in the following tables.
Bailey Corporation | |||
Selected Financial Data, Years Ended December 31 | |||
(in Thousands) | |||
< >> | |||
Item | 1998 | 1999 | 2000 |
Sales | $50,000 | $60,000 | $70,000 |
Less: cost of goods sold (COGS) | 37,000 | 43,700 | 47,250 |
Earnings before interest & taxes (EBIT) | 13,000 | 16,300 | 22,750 |
Less: Interest | 10,000 | 13,000 | 19,000 |
EBT | 3,000 | 3,300 | 3,750 |
Less: Taxes | 1,000 | 1,100 | 1,250 |
Net Income | $2,000 | $2,200 | $2,500 |
Dividends Paid | $1,000 | $1,200 | $1,500 |
Total Shares Outstanding | 1,000,000 | ||
Simpson’s Purchase Transactions in BC’s Stock | |||
Date | January 1, 1998 | January 1, 1999 | January 1, 2000 |
Number of Shares | 10,000 | 290,000 | 700,000 |
Price per Share | 10 | 11 | 15 |
Because this is the largest acquisition in Simpson's history, Mr. Haggs' supervisor has asked him to prepare a report for Garvess Jones' clients detailing the affects of the acquisition on Simpson's financial statements.
Haggs wonders which accounting method Simpson uses to calculate the book value of the BC investment for the year ending December 31, 1999. Which is the correct method?
A) Equity method.
B) Consolidation method.
C) Cost method.
Q49. Haggs wonders which accounting method Simpson uses to calculate the book value of the BC investment for the
year ending December 31, 1998. Which is the correct method?
A) Cost method.
B) Equity method.
C) Consolidation method.
Q50. Haggs wonders which accounting method Simpson uses to calculate the book value of the BC investment for the
year ending December 31, 2000. Which is the correct method?
A) Equity method.
B) Consolidated method.
C) Pooling-of-interests method.
答案和详解如下：
Q48. Joseph Haggs, CFA, is an analyst working for Garvess Jones, a large publicly traded investment-baking firm. Haggs covers
the Internet sector. Recently, one of the more successful companies Haggs covers, Simpson Corporation, made an
aggressive move to acquire another Internet company, Bailey Corporation (BC). BC is a company specializing in graphics and
animation on the World Wide Web and has 1,000,000 shares outstanding. Simpson also holds minimal investments in other
technology companies both public and private. In 1999 Simpson saw an opportunity to substantially increase its share in BC.
Simpson feels that their sophisticated animation can greatly improve Simpson's market share and sees an acquisition as an
opportunity to expand their business. The relevant financial data are in the following tables.
Bailey Corporation | |||
Selected Financial Data, Years Ended December 31 | |||
(in Thousands) | |||
< >> | |||
Item | 1998 | 1999 | 2000 |
Sales | $50,000 | $60,000 | $70,000 |
Less: cost of goods sold (COGS) | 37,000 | 43,700 | 47,250 |
Earnings before interest & taxes (EBIT) | 13,000 | 16,300 | 22,750 |
Less: Interest | 10,000 | 13,000 | 19,000 |
EBT | 3,000 | 3,300 | 3,750 |
Less: Taxes | 1,000 | 1,100 | 1,250 |
Net Income | $2,000 | $2,200 | $2,500 |
Dividends Paid | $1,000 | $1,200 | $1,500 |
Total Shares Outstanding | 1,000,000 | ||
Simpson’s Purchase Transactions in BC’s Stock | |||
Date | January 1, 1998 | January 1, 1999 | January 1, 2000 |
Number of Shares | 10,000 | 290,000 | 700,000 |
Price per Share | 10 | 11 | 15 |
Because this is the largest acquisition in Simpson's history, Mr. Haggs' supervisor has asked him to prepare a report for Garvess Jones' clients detailing the affects of the acquisition on Simpson's financial statements.
Haggs wonders which accounting method Simpson uses to calculate the book value of the BC investment for the year ending December 31, 1999. Which is the correct method?
A) Equity method.
B) Consolidation method.
C) Cost method.
Correct answer is A)
When a company owns an influential but non-controlling interest in another company, commonly 20-50%, it must account for it under the equity method.
Q49. Haggs wonders which accounting method Simpson uses to calculate the book value of the BC investment for the
year ending December 31, 1998. Which is the correct method?
A) Cost method.
B) Equity method.
C) Consolidation method.
Correct answer is A)
When a company owns a non-influential and non-controlling interest in another company the investment must be carried at cost. Simpson must carry its BC investment at cost for 1998.
Q50. Haggs wonders which accounting method Simpson uses to calculate the book value of the BC investment for the
year ending December 31, 2000. Which is the correct method?
A) Equity method.
B) Consolidated method.
C) Pooling-of-interests method.
Correct answer is B)
When a company's interest in another exceeds 50% it is considered to have controlling interest and must consolidate the financial statements.
thanks
thanks
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