Bear Stearns & Co Essay

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CASE: Quality of Earnings #2 – Bear Stearns & Co 1. What is Blockbuster's amortization timetable? Do you think it is appropriate? The amortization timetable of Blockbuster is 40 years. In my opinion as an investor's perspective, it is not appropriate because of this is not as per the SEC standard of 5-7 years. 2. What would be the impact on Blockbuster's 1988 earnings per share if 5 amortization were applied to this goodwill? If the 5-year amortization were applied in its place of the 40-year timetable, then it is necessary for Blockbuster to identify the goodwill in larger amounts. This would increase tax liability of Blockbuster, which would have represented a loss of $0.09 (0.58 - 0.49) per share | 1988 | 40 Yrs.…show more content…
Over what period does BV depreciate its "base stock" videotapes? Blockbuster depreciates its "base stock” videotapes over 36-month, using a straight-line amortization period. 5. What was the effect on earnings per share of the change in depreciation method for 'hit" tapes (assume that hit tapes made up 25% of new tape purchases, and that the average hit tape was owned for half the year)? If the depreciation method changes from straight-line method to accelerated method then, depreciation expense would be increase and net income would decrease. The EPS ratio would represent a loss of $0.19 per share. EPS = (Net Income - Dividend on preferred stock)/Average Outstanding Share | 1988 | 1987 | Videocassette rental inventory | 76,390,000.00 | 19,600.00 | Less: Accumulated amortization | (16,096,000.00) | (3,211.00) | Videocassette rental inventory Book Value | 60,294,000.00 | 16,389.00 | New Tape Purchase | 76,373,611.00 | | New "hit" Tape Purchase | 19,093,402.75 | | Depreciation Under Previous Method for "hit" | 12,728,935.17 | | Depreciation Under New Method "hit" | 3,182,233.79 | | Net Income Before Taxes (before Adjustment) |
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