to divest of this business, Walmart will record a non-cash loss of approximately $1 billion, after tax, in the third quarter of fiscal 2021 What impact will this have on the fiscal 2021 earnings quality? Question 29 options: a) Weakens due to substance issues b) Strenthens due to substance issues c) Strengthens due to sustainabilit

to divest of this business, Walmart will record a non-cash loss of approximately $1 billion, after tax, in the third quarter of fiscal 2021 What impact will this have on the fiscal 2021 earnings quality? Question 29 options: a) Weakens due to substance issues b) Strenthens due to substance issues c) Strengthens due to sustainabilit

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter6: Accounting Quality

Section: Chapter Questions

Problem 20PC

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Ross Enterprises has a contract with Big Steel Company Limited in respect of Information Technology (IT) Services. The contract was signed on January 1st 2020 and will be effected on the 1st April 2020. In mid-February 2020 Big Steel’s sales plummeted due to the Covid 19 pandemic. In addition, an already high long term debt, and operating cost, as well as Big Steel’s current negative cash flows situation placed the company in serious financial peril. Indeed if they cannot find a resolution soon to deal with their cash flow problems and debt, they will have to close operations permanently and send all employees home. Upon hearing this pronouncement, the Trade Union representing workers at Big Steel advised management that they will take strike action. This further affected the operations of Big Steel and resulted in a loss of production, sales and the much-needed cash flows, which is critical to pay off their debt and meet current fixed operating cost. On 3rd March 2016, Big Steel files…
XYZ Corp. is a manufacturer of generators. The domestic market for this products is currently not doing well, and therefore many entities in this business are switching to export. As per audited financial statements for the year ended December 31, 2021, the entity had a net loss of P 2,000,000. At December 31, 2021, its current assets aggregate to P 20,000,000 and current liabilities aggregate to P 25,000,000. Due to expected favorable changes in the government policies for this industry, the entity is projecting profits to the coming year. Furthermore, the shareholders of the entity have arranged alternative additional sources of financing for its expansion plans and to support its working capital requirements in the next 12 months. Should ABC Corp. prepare its financial statements under the going concern assumption? Explain.
Ross Enterprises has a contract with Big Steel Company Limited in respect of Information Technology (IT) Services. The contract was signed on January 1st 2020 and will be effected on the 1st April 2020. In mid-February 2020 Big Steel’s sales plummeteddue to the Covid 19 pandemic. In addition, an already high long term debt, and operating cost, as well as Big Steel’s currentnegative cash flows situation placed the company in serious financialperil. Indeed if they cannot find a resolution soon to deal with their cash flow problems and debt, they will have to close operations permanently and send all employees home. Upon hearing this pronouncement, the Trade Union representing workers at Big Steel advised management that they will take strike action. This further affected the operations of Big Steel and resulted in a loss of production, sales and the much-needed cash flows, which is critical to pay off their debt and meet current fixed operating cost. On 3rd March 2016, Big Steel…
In November 2007, for example, General Motors (GM) announced that it would take a write-off of about $39 billion, meaning that it was reducing net income for the third quarter of the year by that amount. Discuss why General Motors’ stockholders probably didn’t suffer as a result of the reported loss. What do you think was the basis for our conclusion?
FINANCIAL STATEMENTS AND TAXES Part I of this case, presented in Chapter 3, discussed the situation of D’Leon Inc., a regional snack foods producer, after an expansion program. D’Leon had increased plant capacity and undertaken a major marketing campaign in an attempt to “go national.” Thus far, sales have not been up to the forecasted level, costs have been higher than were projected, and a large loss occurred in 2018 rather than the expected profit. As a result, its managers, directors, and investors are concerned about the firm’s survival.Donna Jamison was brought in as assistant to Fred Campo, D’Leon’s chairman, who had the task of getting the company back into a sound financial position. D’Leon’s 2017 and 2018 balance sheets and income statements, together with projections for 2019, are given in Tables IC 4.1 and IC 4.2. In addition,Table IC 4.3 gives the company’s 2017 and 2018 financial ratios, together with industry average data.The 2019 projected financial statement data…
In 2021, due to a change in marketing forecasts, Barney Corporation reduced the projected life of its patent for producing round dice. The cumulative patent amortization prior to 2021 would have been $10 million higher had the new life been used. Barney's tax rate is 25%. Barney's retained earnings as of December 31, 2021, would be:
Kerrigan Corporation announced on November 1, 2021 that company's CEO has been terminated and that James McCabe will become the company's new CEO. Kerrigan has had decreasing income over the last several of years. McCabe will be responsible for improving Kerrigan's future performance. What earnings management technique will the company probably utilize as a result of hiring a new CEO? Question 30 options: a) Increase cookie jar reserves b) Big Bath c) Accelerate current period revenues into future periods d) Accelerating future period expenses into the current period
Barber Technologies designs and develops software to be used for the management of inventory by both retailers and manufacturing firms. Over the past three years, the company has experienced significant competition and a declining market resulting in a significant deficit in retained earnings. In response to this condition, you have suggested that management consider the following: a. Recognize all asset impairments.b. Restructure the long-term debt by committing to make future payments that are less than the basis of the original debt.c. Adjust the par value of common stock to eliminate the deficit in retained earnings. Discuss how the above actions will likely affect: 1. The current ratio, debt-to-equity ratio, and return on equity. 2. The determination of net income in subsequent periods.
Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Eastern’s fiscal year ends December 31, and the 2021 financial statements are issued on March 15, 2022. Eastern is involved in a lawsuit resulting from a dispute with a supplier. On February 3, 2022, judgment was rendered against Eastern in the amount of $117 million plus interest, a total of $132 million. Eastern plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company. In November 2020, the State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On January 12, 2022, Eastern reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $150 million will be required to cover the cost of violations. Eastern believes that the…
Pierce Corporation has the following gross profits for 2018 and 2019: Sales = 2019 - P810,000; 2018 - P792,000. Cost of sales = 2019 - 480,000; 2018 - 464,000. Gross profit = 2019 - P330,000; 2018 - P328,000. Sales price was 10% lower during 2019. The percent of increase (decrease) in cost price must be: The owners would like to know what reasons caused the current performance of the company and ask your opinion. Through review of the complete records you were able to obtain this additional information: (1) The selling price for every unit is P7.20 during 2018 and; (2) The marketing department did a tremendous job and was able to increase sales units by 20% during 2019. The increase (decrease) in gross profit because of the change in sales price is: a. P900 b. P1,080 c. (P4,320) d. P15,480
Pierce Corporation has the following gross profits for 2018 and 2019: Sales = 2019 - P810,000; 2018 - P792,000. Cost of sales = 2019 - 480,000; 2018 - 464,000. Gross profit = 2019 - P330,000; 2018 - P328,000. Sales price was 10% lower during 2019. The percent of increase (decrease) in cost price must be: The owners would like to know what reasons caused the current performance of the company and ask your opinion. Through review of the complete records you were able to obtain this additional information: (1) The selling price for every unit is P7.20 during 2018 and; (2) The marketing department did a tremendous job and was able to increase sales units by 20% during 2019. The increase (decrease) in gross profit because of the change in unit cost is: a. (P19,000) b. P10,800 c. (P10,800) d. P9,000
Harrington Company was sued by an employee in late 2020. General counsel concluded that there was an 80 percent probability that the company would lose the lawsuit. The range of possible loss is estimated to be $20,000 to $70,000, with no amount in the range more likely than any other. The lawsuit was settled in 2021, with Harrington making a payment of $60,000. Assume that Harrington Company is a U.S.-based company that is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must be made. Ignore income taxes. Required: Prepare journal entries for this lawsuit for the years ending December 31, 2020, and December 31, 2021, under (1) U.S. GAAP and (2) IFRS. Prepare the entry(ies) that Harrington would make on the December 31, 2020, and December 31, 2021, conversion worksheets to convert U.S. GAAP balances to IFRS.