Intermediate Accounting: Reporting and Analysis, 2017 Update
2nd Edition
ISBN: 9781337116619
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 13, Problem 7C
To determine
Discuss the issues raised by this situation.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Suppose you were a CPA and you had invested in IBM when IBM was not one of your firm's clients. Two years later, after IBM's stock price had fallen considerably, your firm won the IBM audit contract. You will be involved in working with the IBM audit. You know that your firm's rules require that you sell your shares immediately. If you do sell immediately, you will sustain a large loss. Do you think this is fair? What would you do?
Hassan Mustafa has recently started his new job as a financial manager in a firm called
ScanSoft. ScanSoft is developing a new process to manufacture optical disks. The development
costs were higher than expected, so ScanSoft requires an immediate cash inflow of $5,200,000.
To raise the required capital, the company decided to issue bonds. Since ScanSoft had no
expertise in issuing and selling bonds, Hassan suggested that the company work with an
investment dealer. The investment dealer bought the company's entire bond issue at a
discount, and then planned to sell the bonds to the public at face value or the current market
value. To ensure it would raise the $5,200,000 it required, ScanSoft plans to issue 5200 bonds
with a face value of $1000 each, on January 20, 2021. Interest is paid semi-annually on July 20
and January 20, beginning July 20, 2021. The bonds pay interest at 5.5% compounded semi-
annually.
Hassan Mustafa realized that when the bonds mature on January 20, 2041, there…
The president of your firm, Lesky and Lesky, has little background in accounting. Today, he walked into your office and said, “A year ago we bought a piece of land for $100,000. This year, inflation has driven prices up by 6%, and an appraiser just told us we could easily resell the land for $115,000. Yet our balance sheet still shows it at $100,000. It should be valued at $115,000. That’s what it’s worth. Or, at a minimum, at $106,000.” Respond to this statement with specific reference to the accounting principles applicable in this situation.
Chapter 13 Solutions
Intermediate Accounting: Reporting and Analysis, 2017 Update
Ch. 13 - Prob. 1GICh. 13 - Provide brief definitions for the following terms:...Ch. 13 - Prob. 3GICh. 13 - Prob. 4GICh. 13 - Prob. 5GICh. 13 - Briefly summarize the accounting for an investment...Ch. 13 - Prob. 7GICh. 13 - Prob. 8GICh. 13 - Prob. 9GICh. 13 - Prob. 10GI
Ch. 13 - Prob. 11GICh. 13 - Prob. 12GICh. 13 - Prob. 13GICh. 13 - Prob. 14GICh. 13 - Briefly describe how to determine and record the...Ch. 13 - Prob. 16GICh. 13 - Prob. 17GICh. 13 - Prob. 18GICh. 13 - Prob. 19GICh. 13 - How does IFRS categorize minority passive...Ch. 13 - Prob. 21GICh. 13 - Prob. 22GICh. 13 - Prob. 23GICh. 13 - Prob. 24GICh. 13 - Prob. 25GICh. 13 - Prob. 26GICh. 13 - Prob. 27GICh. 13 - What is a fund? Distinguish between a fund and an...Ch. 13 - Prob. 29GICh. 13 - Prob. 30GICh. 13 - On January 1, 2016, Weaver Company purchased as...Ch. 13 - Prob. 2MCCh. 13 - Prob. 3MCCh. 13 - Prob. 4MCCh. 13 - Prob. 5MCCh. 13 - Prob. 6MCCh. 13 - A security in a portfolio of available-for-sale...Ch. 13 - Prob. 8MCCh. 13 - Cash dividends declared out of current earnings...Ch. 13 - Prob. 10MCCh. 13 - Prob. 1RECh. 13 - Prob. 2RECh. 13 - Prob. 3RECh. 13 - Prob. 4RECh. 13 - Prob. 5RECh. 13 - Prob. 6RECh. 13 - Prob. 7RECh. 13 - Prob. 8RECh. 13 - Prob. 9RECh. 13 - Prob. 10RECh. 13 - Prob. 11RECh. 13 - Prob. 12RECh. 13 - Prob. 13RECh. 13 - On January 1, Kilgore Inc. accepts a 20,000...Ch. 13 - Prob. 15RECh. 13 - Prob. 16RECh. 13 - Prob. 1ECh. 13 - Prob. 2ECh. 13 - Prob. 3ECh. 13 - Prob. 4ECh. 13 - Prob. 5ECh. 13 - Prob. 6ECh. 13 - Prob. 7ECh. 13 - Prob. 8ECh. 13 - Prob. 9ECh. 13 - Prob. 10ECh. 13 - Prob. 11ECh. 13 - Prob. 12ECh. 13 - Prob. 13ECh. 13 - Prob. 14ECh. 13 - Prob. 15ECh. 13 - Prob. 16ECh. 13 - Prob. 17ECh. 13 - Prob. 18ECh. 13 - Prob. 19ECh. 13 - Prob. 20ECh. 13 - Prob. 21ECh. 13 - Prob. 22ECh. 13 - Prob. 23ECh. 13 - Prob. 24ECh. 13 - Prob. 25ECh. 13 - Prob. 26ECh. 13 - Prob. 1PCh. 13 - Prob. 2PCh. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Prob. 5PCh. 13 - Prob. 6PCh. 13 - Trading Securities 8th State Bank prepares interim...Ch. 13 - Available-for-Sale Securities Holly Company...Ch. 13 - Investments in Equity Securities Noonan...Ch. 13 - Available-for-Sale Investments Manson Incorporated...Ch. 13 - Prob. 11PCh. 13 - Prob. 12PCh. 13 - Prob. 13PCh. 13 - Prob. 14PCh. 13 - Prob. 15PCh. 13 - Prob. 16PCh. 13 - Prob. 17PCh. 13 - Prob. 18PCh. 13 - Prob. 19PCh. 13 - Prob. 20PCh. 13 - Prob. 21PCh. 13 - Prob. 22PCh. 13 - Prob. 23PCh. 13 - Prob. 1CCh. 13 - Investments in Securities Cane Company has two...Ch. 13 - Prob. 3CCh. 13 - Prob. 4CCh. 13 - Available-for-Sale Securities The following are...Ch. 13 - Prob. 6CCh. 13 - Prob. 7CCh. 13 - Prob. 8CCh. 13 - Prob. 9CCh. 13 - Prob. 10C
Knowledge Booster
Similar questions
- A close friend of your father has a medium-sized firm with about 400 employees. You overheard him mention to your father that he was considering "taking the firm public" in order to access more money for expansion. He suggested your father invest in the company at that time. Since you are a finance major your father asked you later what you thought about the opportunity and exactly what was involved in "taking the firm public." What financial statements would he need to provide to potential investors? Would it be better for him to issue a bond? explains the process involved in "taking a firm public" and issuing common stock that will then be traded on an organized exchange?arrow_forwardDavid Lyons, CEO of Lyons Solar Technologies, is concerned about his firm’s level of debt financing. The company uses short-term debt to finance its temporary working capital needs, but it does not use any permanent (long-term) debt. Other solar technology companies have debt, and Mr. Lyons wonders why they use debt and what its effects are on stock prices. To gain some insights into the matter, he poses the following questions to you, his recently hired assistant: Who were Modigliani and Miller (MM), and what assumptions are embedded in the MM and Miller models?arrow_forwardYou are an accounting student at your local university. Your brother has recently managed to save $5,000, and he would like to invest some of this money in the stock market, so hes researching various global corporations that are listed on the stock exchange. He is reviewing a company that has Goodwill as an item on the balance sheet. He is quite perplexed about what this means, so he asks you for help, knowing that you are taking accounting classes. How would you explain the concept of goodwill to him by comparing it to other types of resources the company has available?arrow_forward
- The senior VP in charge has asked that you make a recommendation for the purchase of new equipment.Ideally, the company wants to limit its capital investment to $500,000. However, if an asset meritsspending more, an investment exceeding this limit may be considered. You assemble a team to helpyou. Your goal is to determine which option will result in the best investment for the company. Toencourage capital investments, the government has exempted taxes on profits from new investments.This legislation is to be in effect for the foreseeable future.The average reported operating income for the company is $1,430,500.The company uses an 11% discount rate in evaluating capital investments.The team is considering the following optionsOption 1:The asset cost is $300,000.The asset is expected to have an 8-year useful life with no salvage value.Straight-line depreciation is used.The net cash inflow is expected to be $62,000 each year for 8 years.A significant portion of this asset is made from…arrow_forwardNancy John, a bright, female investment analyst about to give a major presentation to a group of bankers supporting a corporate acquisition. After walking in and meeting the bankers before you give the presentation, you're asked by your boss to "be a dear and serve them coffee." Imagine the insult and awkwardness of such a situation-what do you do? Do you carry through with the task, sacrificing your dignity or doing something wrong because you can't afford to lose the job? Or do you speak up? A group of Swiss occupational health researchers have recently started a program of research on illegitimate tasks, or tasks that violate "norms about what can reasonably be expected from a given person" in a job. Question: 1. What do you think of this situation? 2. What might cause supervisors and managers within organizations to allocate these kinds of tasks? 3. Can you explain it based on 'positive reinforcement' behavior and suggest some suggestion?arrow_forwardPenco Ltd’s board of directors are looking into expanding the company’s business operations. Before investing in a new product, the board conducted one focus group, and based on this one bit of feedback, invested $5m of company funds to develop the product. Within two years, the company had lost $8m due to poor sales. Shareholders are furious and wish to hold directors personally liable for this loss. Analyse the likely outcome for directors if shareholders were to accuse the board of breaching CA s 180.arrow_forward
- What if a loyal accountant was asked to fudge some figures on behalf of their company, all while straining under a new mortgage? Imagine that you are the Chief Financial Officer of a medium to large company. It is April and the Chief Executive Officer has just returned from a meeting with the company’s bankers. She calls you to her office to discuss the results of the negotiations. As things stand, the company requires a fairly significant injection of capital which will be used to modernise plant and equipment. The company has been promised new orders if it can produce goods to an international standard. Existing machinery is incapable of manufacturing the required level of quality. Whilst the bank is sympathetic, current lending policies require borrowers to demonstrate an adequate current and projected cash flow, as well as a level of profitability sufficient to indicate a capacity to make repayments from an early date. The problem is that, largely because of some industrial…arrow_forwardYou have just been employed as the New chief executive officer of a medium sized company that is listed on the Ghana stock exchange. At the maiden board meeting,the chairman advised you and your management team to avoid what he termed as "Agency Problem" Explain the term "agency proAm blem " and identify (4) way by which shareholders can deal with it. (B)Suppose you are expecting to receive a million british pounds in six months,and you agree to a forward trade to exchange your pounds for dollars.IF the spot exchange rate and the 180-day forward rate in terms of dollars per pound are$1.5861=£1 and$1.5832=£1,respectively,how many dollars will you get in six months?Is the pound selling at a discount or a premium relative to the dollar? (C)suppose the british pound U-S dollar exchange rate is currently So=£.50.Further suppose that the inflation rate in Britain is predicted to be 10percent over the year ,coming year and(for the moment)the inflation rate in the United States is predicted…arrow_forwardA client asks you for help in a financial merger situation. You decline because the matter is outside your expertise, and refer the company to a fellow practitioner who is knowledgeable in financial affairs. The fellow practitioner is so appreciative, he sends you a cheque for $1000.00. Can you accept the money without telling the client? Answer the question in at least 500 words in length.arrow_forward
- David Lyons, CEO of Lyons Solar Technologies, is concerned about his firms level of debt financing. The company uses short-term debt to finance its temporary working capital needs, but it does not use any permanent (long-term) debt. Other solar technology companies have debt, and Mr. Lyons wonders why they use debt and what its effects are on stock prices. To gain some insights into the matter, he poses the following questions to you, his recently hired assistant: Now assume that Firms L and U are both subject to a 25% corporate tax rate. Using the data given in part b, repeat the analysis called for in parts b(1) and b(2) using assumptions from the MM model with taxes.arrow_forwardjohn has a great idea to setuo a pie and pastie factory. He needs $200,000 to buy the equipment and to lease suitable prmises for a year. He is not sure whether he should setup a company and issue 200,000 shares to his friends, or else try to borrow $200,000 from a bank to raise those funds. Explain to him the advantages and disadvantages of both alternatives.arrow_forwardHandy Ltd is a glove manufacturer in Melbourne. The managers decide to obtain an automated machine worth $1,000,000. As a result of obtaining such a machine, there will be a $100,000 reduction in total expense. The managers are considering the following options: Option 1: Purchase the machine with existing cash at the business bank account, assuming Handy Ltd has sufficient cash at bank. Option 2: The owner contributes the machine to the business. The managers have provided you with following information prior to obtaining the machine: Sales revenue $500,000 $100,000 $400,000 $900,000 $1,500,000 $1,900,000 Net profit Total current liabilities Total liabilities Total current assets Total assets Required: Calculate the Debt (to assets) Ratio, Current Ratio and Net Profit Margin after obtaining the machine if either Option 1 or Option 2 is taken. Option 1 Option 2 Debt (to assets) Ratio Current Ratio Net Profit Margin Handy Ltd has an existing loan agreement with Hilltop Bank, which…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College