cases from schroeder

Chapter 1 WWW Cases

Case 1-7 International Issues

Many companies have a significant amount of sales in foreign markets.

Required:Compare the current period sales and net income from U.S. and non-U.S. sales for the following companies. Note any significant differences between the companies. Financial statements can be located on the company websites given. Which company has the largest portion of its sales in the United States? Which has the largest portion of its profits in the United States?

Company Ford Motor CompanyGeneral Motors Corporation

Case 1-8 International Accounting Standards

Microsoft Corporation presents its income statement in a variety of formats using both the currencies and the accounting practices of other countries in the “Analysis Tools” area of the investor section of their website (www.microsoft.com/msft/tools.htm). Compare the U,S., Canadian, UK, and Australian income statements. What features of the non-U.S. statements do you think are improvements on the U.S. statements? What features did you find to be confusing?

Financial Analysis Case

Each chapter contains a financial analysis case. For each of these cases, you will be asked to apply some of the principles of financial analysis that were introduced in the various chapters. For Chapter 1 the first assignment is to pick a company to analyze for the entire semester. It is suggested that you choose a Fortune 500 manufacturing or merchandising company so that all of the ratios discussed in subsequent chapters can be calculated.

Required:After choosing your company, log onto the SEC Edgar Form Pick website (http://www.sec.gov/edaux/formlynx.htm). Type your company name in the company name box and find the latest 10-K report for the company you have selected. Answer the following questions:

a. What is the company’s conformed name?b. What is the company’s standard industrial classification?c. What is the company’s state of incorporation?d. What is the company’s fiscal year-end?e. What is the company’s business address?f. What is the company’s telephone number?g. On which stock exchange(s) is the company’s stock listed?

h. Summarize the company’s business operations as discussed on the Cover Page in part I of the company’s 10-K.

i. Who are the company’s major competitors? (Found under competitive position in part I.)j. Choose two of the company’s competitors to use for comparative analysis purposes and print

the latest 10-K reports for these two companies. You will need these reports for the cases in each of the remaining chapters.

Chapter 2 WWW Cases

Case 2-10 FASB Exposure Drafts and Emerging Issues

Visit the FASB's home page on the World Wide Web (http://www.rutgers.edu/Accounting/raw/fasb/welcome.htm).

Required:a. Review recently posted FASB Documents and Information to determine if any important new

initiatives are being considered by the FASB.b. What exposure drafts are currently outstanding?c. What issues are being considered by the Emerging Issues Task Force?

Case 2-11 the FASB’s Mission and Processes

Visit the FASB's home page on the World Wide Web (http://www.rutgers.edu/Accounting/raw/fasb/welcome.htm).

Review the “FASB Facts” section of its website. In particular, read through the sections “Facts about FASB—Mission & Structure of the Board” and “FASAC—Financial Accounting Standards Advisory Council.”

Required:a. Summarize the mission of the FASB in one or two paragraphs. What do you think about the

FASB’s mission? Is it too broad; is it too vague, do you think the mission is achievable?b. How effective do you think the FASB’s processes are? Do you think they will focus on the

right issues on a timely basis? Do you think that all relevant parties will be heard in their process?

c. Summarize the current membership of the FASAC including the group’s mix of gender and type of organization they represent. Do you think this group is adequately diverse in order to allow all relevant parties to be heard?

Case 2-12 FASB Recent Additions

Visit the FASB's home page on the World Wide Web (http://www.fasb.org/)Required:Review the “Recent Activity andNews” section of the FASB website. Pick two of the items presented and (1) summarize the items and (2) provide your own opinion about the items and

how you think the FASB should handle any issues that are presented.

Case 2-13 Principles Based vs. Rule Based Accounting Standards

Required:Discuss the issue of principles based vs. rule based accounting standards.

Case 2-14 International Accounting standards

Required:Discuss the FASB-IASB international convergence project

Case 2-15 The Financial statement Presentation Project

Required:Discuss the FASB-IASB financial statement presentation project.


Companies disclose the impact of new accounting pronouncements in the footnotes to their financial statements (Usually in the Summary of Significant Accounting Policies).

Required:

Search your company’s financial statements to determine the new accounting standards that affected their operations during the past year and summarize their effects.

Chapter 3 WWW Cases

Case 3-7 IASC Home Page

Log onto the World Wide Web and enter the International Accounting Standards Board's home page.

Required:a. What general categories of information are contained on the IASB's home page?b. What current issues is the IASB reviewing?


GAAP vs. International Accounting Standards

Required:Find a foreign company that is selling securities in the U.S. securities markets and comment on the change in net income that was caused by changing from the company’s domestic accounting

standards to U.S. GAAP.

Chapter 4 WWW Cases

Case 4-9 Agency Theory

According to agency theory, the existence of debt imposes agency costs.

Required:a. What are agency costs?b. Explain why an increase in debt would increase agency costs and what the resulting effect

would be for debt holders.c. What strategy might debt holders utilize to counter potential adverse agency effects?

Case 4-10 Capital Asset Pricing Model

Log onto the World Wide Web and find three companies whose stocks are traded on the New York Stock Exchange. Compute a beta for the three companies by comparing the movement in their stock with the movement of Standard and Poor's 500 for five years. (For simplicity, track the percentage stock returns and the percentage return for the index on the first day of each quarter for the five-year period.) Hint: You can compute beta by using each of the company's quarterly returns as the dependent variable and the index as the independent variable in a regression analysis. Compare the betas of the three companies. What do these betas tell you about the relative volatility of the three stocks? Next, compute the betas for the three companies using the movement in the Dow Jones Industrials over the same period. Are the calculated betas the same? Why? Finally, look the companies in an investor service such as Value Line or Standard and Poor’s. What are the betas disclosed for the companies?


Compile information for your company to be used to perform a fundamental analysis (annual reports, quarterly reports, management’s discussion and analysis and information from the financial press).

Required:a. Consult the Web to determine the current recommendation for your company’s stock from

financial analysts. (A good source for this information is the Fortune Investor.)b. Comment on the trend in earnings for your company and future expectations voiced by

management.c. Chart your company’s stock price for the past 12 months and compare it to changes in the

Standard and Poor’s Index (Use another index if your company is in a specialized industry for which an index is published.)

d. Use the index chosen in part c to compute a beta for your company.

Chapter 5 WWW Cases

Case 5-9 Revenue Recognition

In the precious metal industry, revenue may be recognized when a precious metal is mined and refined.

Required: a. Describe how this practice differs from the way companies typically recognize revenue.

b. Explain the reasoning behind recognizing revenue when a precious metal is mined and refined.

c. Explain the reasoning behind the typical practice for recognizing revenue.

Required:Summarize the authorized findings.

Case 5-10 Presentation of Comprehensive Income

Log on to the World Wide Web and search for the annual reports of three domestic "Fortune 1000" companies and three international companies. Required:

a. Review the income statements of the three domestic companies i. Do the companies disclose items of other comprehensive income as defined by

the FASB? ii. For companies disclosing items of other comprehensive income, is a one

statement or two statement approach used to disclose these items? b. Review the income statements of the three international companies. Do the companies

present a Statement of Non-owner Movements in Equity?


Assess your company’s quality of earnings.

Required:

a. Use the eight techniques outlined in the text. b. Assess the correlation between accounting income and economic income for your

company.

Chapter 6 WWW Cases

Case 6-10 Objectives of Financial Statements

Discuss how a company’s primary financial statements are useful to potential investors who are trying to decide whether to buy stock in the company. Support your discussion by citing objectives outlined in the Conceptual Framework.

Case 6-11 Financial Analysis Log onto the World Wide Web and search for the annual reports of three domestic Fortune 1000 companies and three international companies.

Required:a. Review the income statements for the three domestic companies and answer the following

questions for the last reporting year:i. What income statement format does each company use?ii. What are the basic and diluted earnings per share for each company?iii. Have any of the companies disclosed accounting changes?iv. Have the companies reported any discontinued operations for the last year?

b. Review the income statements for the three domestic companies and answer the following questions for the last reporting year:i. Do the companies present the income statement in the format suggested in Presentation

of Financial Statements?ii. What are the basic and diluted earnings per share for each company?iii. Have any of the companies disclosed accounting changes?iv. Have the companies reported any discontinued operations for the last year?


Assess investors’ comparative perceptions of the outlook for your company.

Required:a. Compute the price/earnings ratio for your company and its two competitors for the last day of

its latest fiscal year.b. Comment on the implications of your company’s price/earnings ratio in comparison to its

competitors’ and market averages.

Chapter 7 WWW Cases

Case 7-10 Assets, Liabilities, Gains and Losses

A company is required to report a liability in its balance sheet when it expects to lose a law suit and the amount of the expected loss can be reasonably estimated. Conversely, a company is prohibited from reporting a receivable in its balance sheet when it expects to win a lawsuit even though it is probably and the amount of the expected gain can be reasonably estimated.

Required:

a. Does the expected loss meet the definition of a liability found in the conceptual framework? Explain.

b. Does the expected gain meet the definition of an asset found in the conceptual framework? Explain.

c. Why do you think accountants treat these seemingly similar situations differently? Explain.

Case 7-11 Analysis of Financial Statements

Log on to the World Wide Web and search for the annual reports of three domestic "Fortune 1000" companies and three international companies (Consult the Preface for web sites of companies or search for different companies) Required:

a. Review the balance sheets and statements of cash flows for the three domestic companies and answer the following questions for the last reporting year:

i. What are some of the measurement bases used by the companies to report their assets?

ii. Did the companies pay dividends for the last reporting year? iii. What method of reporting cash flows from operating activities did each of the

companies use? iv. What were the company's cash flow from operations? Did this differ substantially

from the net income reported on the income statement? Why? v. What were the company's major cash flows from investing and financing

activities? b. Review the balance sheets and statements of cash flows for the three international

companies and answer the following questions for the last reporting year: i. What are some of the measurement bases used by the companies to report their

assets? ii. Did the companies pay dividends for the last reporting year?

iii. Are the companies disclosing the information concerning their financial assets that is required under the provisions of IAS No. 32?

iv. What method of reporting cash flows from operating activities did each of the companies use?

v. What were the company's cash flow from operations? Did this differ substantially from the net income reported on the income statement? Why?

vi. What were the company's major cash flows from investing and financing activities?

vii. Do the companies follow U.S. GAAP or international standards in reporting cash flows from investing activities?

Case 7-12 Fair Value Measurements

Required:Summarize SFAS No. 157 “Fair Value Measurements

Case 7-13 Presentation of Comprehensive Income Log onto the World Wide Web and search for the annual reports of three domestic Fortune 1000 companies and three international companies. (Consult the Preface for websites of companies or search for different companies.)

Required:a. Review the income statements of the three domestic companies: i. Do the companies disclose items of other comprehensive income as defined by the FASB? ii. For companies disclosing items of other comprehensive income, is a one-statement or two-statement approach used to disclose these items?b. Review the income statements of the three international companies. Do the companies present

a Statement of Non-owner Movements in Equity?


Assess the financial position of your company in comparison to its competitors Required:

a. Compute the return on assets, profit margin and asset utilization rate for your company and its two competitors.

b. Assess your company’s competitive financial position. c. Compute the free cash flow for your company and its two competitors d. Assess your company’s relative cash position and comment on its receipt and use of cash

during the year.

Chapter 8 WWW Cases

Case 8-12 Accounting for Purchase Discounts

Companies record purchases of inventory on account having terms that allow cash discounts under either the net method or the gross method. The net method is generally considered theoretically sounder than the gross method.

Required:Describe the advantages and disadvantages of both methods.

Case 8-13 Financial Analysis

Log onto the World Wide Web and search for the annual reports of three domestic Fortune 1000

companies and three international companies.

Required:a. Review the balance sheets for the three domestic companies and answer the following

questions for the last reporting year:i. Do the companies disclose any short-term investments? If so, what method is used to

account for these short-term investments?ii. What inventory cost flow methods are the companies using?iii. Compute the working capital for each of the companies.

b. Review the balance sheets for the three international companies and answer the following questions for the last reporting year:i. Do the companies separately disclose current assets and current liabilities?ii. Do the companies disclose any short-term investments? If so, what method is used to

account for these short-term investments?iii. What inventory cost flow methods are the companies using?iv. Compute the working capital for each of the companies.v.


Evaluate your company’s working capital position.

Required:a. Compute the following ratios for your company and its two competitors:

i. Working capitalii. Current ratioiii. Acid test ratioiv. Cash flow from operations to current liabilitiesv. Accounts receivable turnover ratiovi. Days in receivablesvii. Inventory turnover ratioviii. Average days in inventory

b. Assess the relative working capital position of your company.

Chapter 9 WWW Cases

Case 9-12 Impairment of Assets

Long-term fixed assets are written down when it is determined that they have been impaired.

Required:a. When are assets considered impaired under current GAAP?b. How are impairment losses measured under current GAAP?c. Would it be more or less conservative to measure the loss using the recoverable amount to

measure impairment losses? Explain. d. Which would be more consistent with economic income: measuring impairment losses using

the recoverable amount or the measurement required under current GAAP? Explain.


Log onto the World Wide Web and search for the annual reports of three domestic Fortune 1000 companies and three international companies. Select at lease one domestic oil-producing company. (Consult the Preface for websites of companies or search for different companies.)

Required:a. For the domestic companies answer the following questions for the last reporting year:

i. What items of property, plant and equipment do each of the companies disclose?ii. What depreciation methods do the companies use?iii. For the oil company, are the disclosure requirements contained in SFAS No. 69 being

followed?b. For the international companies answer the following questions for the last reporting year:

i. What items of property, plant and equipment do each of the companies disclose?ii. What depreciation methods do the companies use? Do the companies disclose how they

selected their depreciation methods?iii. Have any of the companies revalued their assets as allowed by IAS No. 16?iv. Have any of the companies changed depreciation methods as required under certain

circumstances by IAS No. 16?


Assess your company’s utilization of long-term assets.

Required:a. Comment on your company’s asset-replacement policyb. How is your company’s asset-replacement policy impacting its return on assets ratio?c. Compare your company’s asset utilization ratio with that of its two competitors.d. What method of depreciation does your company use?e. What depreciation method do your company’s two competitors use?

Chapter 10 WWW Cases

Case 10-10 Organization Costs

Newatit Company spent a substantial amount of money organizing and getting ready for business. These costs are considered organization costs.

Required:a. Does the incurrence of organization costs meet the definition of assets found in the

Conceptual Framework? Explain.b. If organization costs are assets, would they be considered intangible assets? Explain.c. How should the cost incurred be matched against earnings under current GAAP?d. Some theorists argue that organization costs should not be amortized. Defend this position.


Log onto the World Wide Web and search for the annual reports of three domestic Fortune 1000 companies and three international companies. (Consult the Preface for websites of companies or search for different companies.)


i. Do the companies report any long-term investments? If so, are they classified as trading securities or held-to-maturity securities?

ii. Do the companies disclose any intangible assets? If so, what categories of intangible assets are disclosed and what amortization period is being used?

iii. Do the companies disclose any research and development expenses?b. For the foreign companies answer the following questions for the last reporting year:

i. Do the companies report any long-term investments? If so, what valuation basis is used by each company?

ii. Do the companies disclose any intangible assets? If so, what categories of intangible assets are disclosed and what amortization period is being used?

iii. Do any of the companies disclose "negative goodwill"?iv. Do the companies disclose any research and development expenses? If so, have any of

the companies recorded development costs as assets?

Case 10-12 Analysis of Research and Development Activities

Log onto the World Wide Web and search for the annual reports of three domestic Fortune 1000 companies and three international companies.

Required:a. Use the approach developed by Gary Entwistle in the article on the webpage for Chapter 11

to research the disclosure of research and development expenditures by corporations. Specifically, which of the following categories of information were disclosed?i. Inputsii. Outputsiii. Future expendituresiv. Financingv. Accounting financialvi. Strategy

b. In which of the five categories of annual report location did the companies disclose research and development information?

c. Compare your results to those reported by the author.


Disclosure of investments and intangibles

Required:a. Review the financial statements for your company to determine if they disclose any of the

following:i. Trading securitiesii. Available-for-sale securitiesiii. Held-to-maturity securitiesiv. Investments accounted for by the equity methodv. Intangibles

b. Perform a similar analysis for your two competitor companies.





i. What is the amount of long-term debt disclosed by each of the companies?ii. Do any of the companies’ debt instruments contain conversion provisions?iii. Do any of the companies disclose short-term obligations expected to be refinanced?iv. Do any of the companies disclose contingent liabilities? If so, have any been reported as

current expenses?v. Have any of the companies engaged in derivative transactions? If so, what types?

b. For the international companies answer the following questions for the last reporting year:i. Are the companies disclosing the information about their financial liabilities that is

required under the provisions of IAS No. 32?ii. What is the amount of long-term debt disclosed by each of the companies?iii. Do any of the company's debt instruments contain conversion provisions?iv. Do any of the companies disclose contingent liabilities? If so, have any been reported as

current expenses?v. Have any of the companies engaged in derivative transactions? If so, what types?.


Evaluate the use of debt.

Required:a. Calculate the following ratios:

i. Long-term debt-to-assets ratioii. Interest coverage ratioiii. Debt service coverage ratio

b. Calculate the same ratios for your competitor companies and comment on your company’s relative solvency and use of leverage

c. Review Item 7a in your company’s and its two competitors’ 10-K reports and summarize the companies’ disclosure of information on market risk.

d. Comment on your company’s comparative use of derivatives.


Case 12-8 The Impact of Changes in Rates on Deferred Tax Amounts

Explain the effect that changes in income tax rates have on income tax expense for companies that have deferred income tax assets and for companies that have deferred income tax liabilities.




i. Do the amounts for income tax expense and income tax payable differ? If so, review the footnotes to determine the reason for this difference.

ii. Do the companies disclose either deferred tax assets or deferred tax liabilities?iii. Do any of the companies disclose net operating loss carrybacks or carryforwards?

b. For the foreign companies answer the following questions for the last reporting year:i. What method of accounting for interperiod tax timing differences are the companies

using? ii. Do the amounts for income tax expense and income tax payable differ? If so, review the

footnotes to determine the reason for this difference.iii. Do the companies disclose either deferred tax assets or deferred tax liabilities?iv. Do any of the companies disclose net operating loss carrybacks or carryforwards?

Case 12-10 FIN 48

Required:Discuss the requirements of FIN No. 48 “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109”


Analyze income tax expense and income taxes payable.

Required:a. Analyze your company’s provision for income taxes and income taxes payable including:

i. The amount of income taxes that would have been paid at the statutory rate and the amount actually paid

ii. Changes in the deferred tax asset and liability accountsiii. Changes (if any) in the amounts of income tax carrybacks and carryforwards

b. Conduct a similar analysis for your two competitor companies and discuss any differences you find.

Chapter 13 Cases

Case 13-9 Capital Leases as in Substance Purchases of Assets

Explain how a capital lease is in substance a purchase of an asset. Tie your explanation to the Conceptual Framework’s definitions of assets and liabilities.



Required:a. Review the financial statements for the three domestic companies and answer the following

questions for the last reporting year:i. Do the companies disclose any capital leases of leased property? If so, are the disclosure

requirements contained in SFAS No. 13 being followed?ii. Are any of the companies lessors in lease transactions? If so, do they use the sales-type

or direct financing method to account for their lease transactions?a. Review the financial statements for the three foreign companies and answer the following

questions for the last reporting year:i. Do the companies disclose any financial leases of leased property? ii. Are any of the companies lessors in lease transactions? If so, how are they accounting

for these transactions?


Use of leases

Required:a. Review the financial statements of your company and its two competitors to determine if

they are using leases as a part of their financing activities strategy.b. Contrast your company’s leasing strategy with those of its competitors.



Log onto the World Wide Web and search for the annual reports of three domestic Fortune 1000 companies and three international companies.


questions for the last reporting year:i. Do the companies report any pension expense?ii. If so, do the companies have defined contribution or defined benefit pension plans?iii. Do the companies disclose any other expenses associated with postretirement benefits?

b. Review the financial statements for the three foreign companies and answer the following questions for the last reporting year:i. Do the companies report any pension expense?ii. If so, do the companies have defined contribution or defined benefit pension plans?iii. Do the companies disclose any other expenses associated with postretirement benefits


Analyze retirement provisions.

Required:a. Review the financial statements of your company and its two competitors to determine if

they disclose information on pension or other postretirement benefits.b. Discuss any differences that you find.


Case 15-13 SFAS 123

On 1/1/x1, Dannon Corp granted to each of its top 5 executives, 1,000 options to purchase shares of the corporation’s $10 par common stock @ $25 per share. On that date, the market price per common share was $22. The options are exercisable on 1/1/x3. The exercise period ends 1/1/x5.

Management expects the executives to exercise their options on the first day they become exercisable. The volatility of the stock price is determined to be .25 and the yield on bonds (risk free rate) is 7%.

Required:

a. Are the options considered compensatory under APB Opinion No. 25? Why or why not?b. What is the total amount of compensation expense under APB Opinion No. 25? Explain.c. Calculate the value, if any, of the options. Use Black-Scholes. (Hint, see the article by

James R. Mountain at the end of the chapter. It’s easier if you use Excel as he did.)d. What is the total amount of compensation expense under current practice, as outlined in

FASB ASC 718-10?e. Do you think the options have value? Explain. What do you believe the proper amount

of expense should be? Why?f. Would your answer be different if the market price of the common shares were only $5?

g. What are the assumptions underlying the Black-Scholes option pricing model?h. How are the Black-Sholes assumptions modified by FASB ASC 718-10 to make them

apply to employee stock options? Explain why?




questions for the last reporting year:i. What components of stockholders' equity do each of the companies disclose?ii. Do the companies have preferred stock shares outstanding? If so, what special features

do these shares contain?iii. Do any of the companies report treasury shares? If so, do the companies disclose the

reason for reacquiring the shares?iv. Do the companies disclose any stock compensation plans? If so, are they reporting such

plans under the fair value or intrinsic value methods? What was the value of compensation expense measured for any outstanding stock option plans?

b. Review the financial statements for the three foreign companies and answer the following questions for the last reporting year:i. What components of stockholders' equity do each of the companies disclose?ii. Do the companies have preferred stock shares outstanding? If so, what special features

do these shares contain?iii. Do any of the companies report treasury shares? If so, do the companies disclose the

reason for reacquiring @@@acquiring?@@@the shares?


Analyze the return to stockholders.

Required:a. Calculate the following ratios:

i. Return on common stockholders’ equityii. Common stock earning leverage ratioiii. Financial structure ratio

b. Calculate the same ratios for your two competitor companies and discuss the relative performance of the three companies from the viewpoint of common stockholders.



Log onto the World Wide Web and search for the annual reports of three domestic Fortune 1000

companies and three international companies. (Consult the Preface for websites of companies or search for different companies.)


questions for the last reporting year:i. Have the companies issued a consolidated financial statement? If so, do they report

goodwill? And, if so, over what period is goodwill being amortized?ii. Have the companies engaged in any foreign currency translation transactions?iii. Do the companies report segmental information?

b. Review the financial statements for the three foreign companies and answer the following questions for the last reporting year:i. Have the companies issued a consolidated financial statement? If so, do they report

goodwill? And, if so, over what period is goodwill being amortized?ii. Have the companies engaged in any foreign currency translation transactions?iii. Do the companies report segmental information?


Disclosure of consolidated information

Required:a. Review the financial statements of your company to determine:

i. Is it a consolidated entity?ii. If so, what segmental information is disclosed?iii. Did the company experience any foreign currency gains or losses?

b. Conduct a similar analysis for your competitor companies.


Case 17-11 Securities and Exchange Commission

Log onto the World Wide Web and enter the SEC's home page (http://www.sec.gov).

Required:What information is contained on the SEC's home page?


Disclosure of forward-looking information

Required:a. Review the financial statements for your company to determine if they disclose any forward-

looking information.b. If so, is this information positive or negative?

c. Conduct a similar analysis for your two competitor companies.