Intermediate Accounting Plus Mylab Accounting With Pearson Etext -- Access Card Package (2nd Edition)
2nd Edition
ISBN: 9780134833101
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 14, Problem 1FSC
a.
To determine
The meaning of credit rating and the reason why a potential investor in bonds would be interested in a company’s credit rating.
b.
To determine
Todetermine: The factors need to be considered by a credit rating agency while rating a company.
c.
To determine
Todetermine: The computation of funds from operations over debt and debt to EBITDA for 2015 and 2016 using the given financial statement information.
d.
To determine
Todetermine: The comparison of financial risk between the year 2015 and 2016
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Calculating Ratios and Estimating Credit Rating
The following data are from Kellogg's 10-K report dated December 29, 2018 ($ millions).
Revenue
Interest expense
Tax expense
Amortization expense
Depreciation expense
$13,547 Earnings from continuing operations $1,344
Capital expenditures (CAPEX) 578
287
181
Total debt
8,893
23
Average assets 17,066
493
a. Use the data above to calculate the following ratios: EBITA/Average assets, EBITA Margin, EBITA/ Interest expense, Debt/EBITDA, CAPEX/Depreciation Expense. Definitions for these
ratios are in Exhibit 7.4.
b. Refer to Exhibit 7.4 and the ratios you calculated in part a. Estimate the credit rating that Moody's might assign to Kellogg.
Round answers to one decimal place (percentage ex: 0.2345 = 23.5%)
Ratio Moody's rating
EBITA/Avg. assets
EBITA margin
EBITA/Int. expense
Debt/EBITDA
CAPEX/Dep. expense
Please answer all parts of the question.
0%
0%
0
0
0
◆
◆
Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted. An
analyst is forecasting EPS for a company. She prepares the following common sized data from
its recent annual report and estimates sales for 2009.
Sales $ millions
Sales as % of sales
Cost of goods sold
Operating Expenses
Interest expense
Restructuring expense
2022 forecast
2,250.0
Pre-tax margin
Taxes (35%)
Net Income
2021 actual
2,150.0
100.00%
45.00%
40.00%
4.02%
7.20%
3.78%
1.32%
2.46%
The capital structure of the company has not changed, and the company has no short term
interest bearing debt outstanding. The projected net income (in $ millions) for 2022 is closest to:
45.00%
40.00%
3.72%
2020 actual
1,990.0
100.00%
11.28%
3.95%
7.33%
Analyzing Accounts ReceivableLupin Pharmaceuticals, an Indian transnational pharmaceutical company, develops and markets a wide portfolio of branded and generic products. The company reported the following in its 2018 annual report.
INR millions
2018
2017
2016
Trade receivables
$45,961.5
$38,184.8
$40,432.7
Less provision for doubtful receivables
306.9
318.4
448.2
Trade receivables, net
$45,654.6
$37,866.4
$39,984.5
Total assets
$140,958
$146,544
$127,375
Revenue from operations
158,042
174,943
142,555
Requireda. Calculate days sale outstanding (DSO) for 2018 and 2017.Note: Round amount (your final answer) to one decimal place (for example, enter 6.8 for 6.77555).
DSO for 2018
Answer
days
DSO for 2017
Answer
days
b. Determine the total amount that customers owe Lupin each year.Note: Round dollar amount (your final answer) to one decimal place (for example, enter 6.8 for 6.77555).
Amount owed in 2018
Answer
Amount owed in 2017
Answer
Amount owed…
Chapter 14 Solutions
Intermediate Accounting Plus Mylab Accounting With Pearson Etext -- Access Card Package (2nd Edition)
Ch. 14 - What conditions or terms does a note payable...Ch. 14 - If the market rate of interest exceeds the face or...Ch. 14 - What is included in bond issue costs and how...Ch. 14 - Prob. 14.4QCh. 14 - When a bond is issued at a discount, will its...Ch. 14 - Prob. 14.6QCh. 14 - Prob. 14.7QCh. 14 - Under IFRS, how do firms account for convertible...Ch. 14 - Prob. 14.9QCh. 14 - Can companies reclassify short-term debt expected...
Ch. 14 - Under IFRS, can companies reclassify short-term...Ch. 14 - Do companies always reclassify long-term debt that...Ch. 14 - Prob. 14.13QCh. 14 - Prob. 14.14QCh. 14 - Prob. 14.15QCh. 14 - Prob. 14.16QCh. 14 - Prob. 14.1MCCh. 14 - Prob. 14.2MCCh. 14 - Prob. 14.3MCCh. 14 - Prob. 14.4MCCh. 14 - Prob. 14.5MCCh. 14 - Clothes Horse Corp. (CHC) Issued 500,000 bonds due...Ch. 14 - Prob. 14.7MCCh. 14 - Prob. 14.8MCCh. 14 - Prob. 14.9MCCh. 14 - Prob. 14.10MCCh. 14 - Prob. 14.11MCCh. 14 - Prob. 14.1BECh. 14 - Notes Payable. Using the information provided in...Ch. 14 - Prob. 14.3BECh. 14 - Prob. 14.4BECh. 14 - Prob. 14.5BECh. 14 - Prob. 14.6BECh. 14 - Bond Terminology. Match each term with its...Ch. 14 - Bond Pricing. Fill in the missing items for each...Ch. 14 - Prob. 14.9BECh. 14 - Bond Issue Price. Using the information from...Ch. 14 - Prob. 14.11BECh. 14 - Prob. 14.12BECh. 14 - Prob. 14.13BECh. 14 - Prob. 14.14BECh. 14 - Prob. 14.15BECh. 14 - Prob. 14.16BECh. 14 - Prob. 14.17BECh. 14 - Prob. 14.18BECh. 14 - Bonds Issued between Interest Payment Dates. For...Ch. 14 - Prob. 14.20BECh. 14 - Prob. 14.21BECh. 14 - Prob. 14.22BECh. 14 - Prob. 14.23BECh. 14 - Prob. 14.24BECh. 14 - Prob. 14.25BECh. 14 - Prob. 14.26BECh. 14 - Prob. 14.27BECh. 14 - Prob. 14.28BECh. 14 - Prob. 14.29BECh. 14 - Prob. 14.30BECh. 14 - Short-Term Debt Expected to Be Refinanced, IFRS....Ch. 14 - Prob. 14.32BECh. 14 - Prob. 14.33BECh. 14 - Prob. 14.34BECh. 14 - Prob. 14.35BECh. 14 - Fair Value Option. Saratoga Company issued bonds...Ch. 14 - Prob. 14.37BECh. 14 - Financial Statement Disclosure. Use the following...Ch. 14 - Prob. 14.1ECh. 14 - Prob. 14.2ECh. 14 - Prob. 14.3ECh. 14 - Prob. 14.4ECh. 14 - Prob. 14.5ECh. 14 - Bond Issue, Interest Payments, Effective Interest...Ch. 14 - Prob. 14.7ECh. 14 - Prob. 14.8ECh. 14 - Prob. 14.9ECh. 14 - Prob. 14.10ECh. 14 - Prob. 14.11ECh. 14 - Prob. 14.12ECh. 14 - Convertible Bonds, Conversion. On January 1, 2018,...Ch. 14 - Convertible Bonds, Conversion. Using the...Ch. 14 - Prob. 14.15ECh. 14 - Prob. 14.16ECh. 14 - Prob. 14.17ECh. 14 - Prob. 14.18ECh. 14 - Warrants. DHC Associates issued 2,100 of its...Ch. 14 - Prob. 14.20ECh. 14 - Prob. 14.21ECh. 14 - Prob. 14.1PCh. 14 - Long-Term Notes Payable, Semiannual Interest,...Ch. 14 - Note Payable Issued at a Discount with...Ch. 14 - Prob. 14.4PCh. 14 - Prob. 14.5PCh. 14 - Bond Issue, Interest Payments, Effective Interest...Ch. 14 - Prob. 14.7PCh. 14 - Bonds Sold between Interest Dates at a Discount,...Ch. 14 - Prob. 14.9PCh. 14 - Prob. 14.10PCh. 14 - Convertible Bonds, Bond Issue Costs, Conversion....Ch. 14 - Prob. 14.12PCh. 14 - Prob. 14.13PCh. 14 - Prob. 1JCCh. 14 - Prob. 2JCCh. 14 - Prob. 3JCCh. 14 - Prob. 1FSCCh. 14 - Prob. 1SSCCh. 14 - Surfing the Standards Case 2: Bonds with...Ch. 14 - Prob. 1BCC
Knowledge Booster
Similar questions
- View Policies Current Attempt in Progress The financial statements of winery Andrew Peller Limited reported net sales of $342606 thosand for s year ended March 31. 2017. Accounts receivable were $26.973 thousand at March 31, 2017. and $2223 thousand at Marth 31,2016 Calculate the company's accounts receivable turnover ratio and the average collestion peried for accouts receivite inys Oo answers to 2 decimal places ng 15.25. Ue 365 days for caloulation) times Accounts receivable turnover ratio day Average collection period for accounts receivable in days e Textbook and Media Attempts:0 of 3 used SutAm Save for Later OT5ZenBookarrow_forwardV. Information related to Izmir A.Ş. for 2017 is summarized below. Total credit sales +920,000 369,000 23,400 Accounts receivable at December 31 Bad debts written off Instructions (a) What amount of bad debt expense will Izmir report if it uses the direct write-off method of accounting for bad debts? (b) Assume that Izmir decides to estimate its bad debt expense to be 3% of credit sales. What amount of bad debt expense will Izmir record if Allowance for Doubtful Accounts has a credit balance of t3,000? (c) Assume that Izmir decides to estimate its bad debt expense based on 7% of accounts receivable. What amount of bad debt expense will Izmir record if Allowance for Doubt- ful Accounts has a credit balance of t4,000? (d) Assume the same facts as in (c), except that there is a t2,000 debit balance in Allow- ance for Doubtful Accounts. What amount of bad debt expense will Izmir record?arrow_forwardMaligalig Company Comparative Statement of Financial Position December 31 (in Thousand Dollars) 2017 2016 2015 ASSETS Current Assets Cash and Cash Equivalents 91,100 12,628 11,254 Short term Investments 193,230 12,000 12,000 Trade Receivables, net of $30,000 allowance 485,000 529,949 510,435 Note Receivable – related party 12,325 18,941 21,543 Other Receivables 80,532 Inventory 212,515 252,567 252,567 Prepaid Insurance 7,500 7,500 7,500 Total Current Assets 1,001,670 914,117 815,299 Non-Current Asset Property, Plant and Equipment 209,330 209,330 209,330 Less Accumulated Depreciation 87,260 75,332 64,034…arrow_forward
- 3. Conceptual Connection: The weighted average for the 4 years (rounded to three decimals) is If credit sales for 2024 are $400,000, what rate would you recommend to estimate bad debts? A rate closer to Feedback Check My Work 1 & 2. Use the data from prior years to calculate losses from uncollectible accounts as a percentage of credit sales. Consider how the loss rate has changed over the years. Feedback 4. If credit sales for 2024 are $400,000 and using the rate you recommended above, record bad debt expense for 2024. Round your answer to three decimal places. Bad Debt Expense 27,600 X Allowance for Doubtful Accounts Record adjusting entry for bad debt expense estimate Check My Work 4. Make the best estimate of bad debt expense you can. 0.069. Increase 0.082 X would be more conservative. 5. Conceptual Connection: Using the data from 2020 through 2023, estimate the change in income from operations in total for those 4 years assuming (a) the average gross margin is 25% and (b) 50% of…arrow_forwardMcKinney Co. estimates its uncollectible accounts as a percentage of credit sales. McKinney made credit sales of 1,500,000 in 2019. McKinney estimates 2.5% of its sales will be uncollectible. Prepare the journal entry to record bad debt expense for McKinney at the end of 2019.arrow_forwardFind the following financial ratios for LVMH Moet Hennessy Louis Vuitton SA (use year-end figures rather than average values where appropriate) (Round your answers to 2 decimal places (e.g., 32.16).) : 2015 2016 Short-term solvency ratios: Current ratio Quick ratio Cash ratio Asset utilization ratios: Total asset turnover Inventory turnover Receivables turnover Long-term solvency ratios: Total debt ratio Debt–equity ratio Equity multiplier Times interest earned ratio Profitability ratios: Profit margin % % Return on assets % % Return on equity % %arrow_forward
- Coca-Cola and PepsiCo are two of the largest and most successful beverage companies in the world in terms of the products that they sell and their receivables management practices. To evaluate their ability to collect on credit sales, consider the following information assumed to have been reported in their 2020, 2019, and 2018 annual reports (amounts in millions). Coca-Cola PepsiCo 2019 Fiscal Year Ended: 2020 2019 2018 2020 Net Sales $31,844 $36,857 3,383 68 $25,288 2,770 75 $ 49,251 3,904 82 $44,274 3,790 81 2018 $36,337 3,267 76 Accounts Receivable 3,161 67 Allowance for Doubtful Accounts Accounts Receivable, Net of Allowance 3,094 3,315 2,695 3,822 3,709 3,191 Required: 1. Calculate the receivables turnover ratios and days to collect for Coca-Cola and PepsiCo for 2020 and 2019. (Consider a 365 days a year. Round your intermediate answers and final answers to 1 decimal place.) 2020 Coca-Cola PepsiCo Receivables turnover ratio Days to collect 2019 Receivables turnover ratio times…arrow_forwardYou have been hired as a financial analyst of a firm and your team is working on an independent assessment of XYZ Inc. Your assistant has provided you with the following data for XYZ Inc. and their industry. Ratio Inventory Turnover Receivables in days Debt to Equity 2020 2019 2018 2020- Industry Average R r 62.65 42.42 32.25 94 63 50 115 d 53.25 0.75 0.85 0.90 0.88 Quick Ratio Curr:ent Ratio 1.028 1.03 1.029 1.33 1.21 1.15 1.25 1.031 Required: a) In annual report of firm CEO wrote, we had higher liquidity largely due to an increase in highly liquid current assets (cash, account receivables and short- term marketable securities).” Is the CEO correct? b) What can you say about the firm's collection period and inventory turnover?arrow_forwardClovis Enterprises reports $845,500 in credit sales for 2018 and $933,000 in 2019. It has a $758,000 accounts receivable balance at the end of 2018 and $841,000 at the end of 2019. Clovis uses the income statement method to record bad debt estimation at 4% during 2018. To manage earnings more favorably, Clovis changes bad debt estimation to the balance sheet method at 5% during 2019. A. Determine the bad debt estimation for 2018. B. Determine the bad debt estimation for 2019. C. Describe a benefit to Clovis Enterprises in 2019 as a result of its earnings management.arrow_forward
- Fortune Accounting reports $1,455,000 in credit sales for 2018 and $1,678,430 in 2019. It has an $825,000 accounts receivable balance at the end of 2018 and $756,000 at the end of 2019. Fortune uses the balance sheet method to record bad debt estimation at 7.5% during 2018. To manage earnings more favorably, Fortune changes bad debt estimation to the income statement method at 5.5% during 2019. A. Determine the bad debt estimation for 2018. B. Determine the bad debt estimation for 2019. C. Describe a benefit to Fortune in 2019 as a result of its earnings management.arrow_forwardAverage Uncollectible Account Losses and Bad Debt Expense The accountant for Porile Company prepared the following data for sales and losses from uncollectible accounts: Required: 1. Calculate the average percentage of losses from uncollectible accounts for 2015 through 2018. 2. Assume that the credit sales for 2019 are $1,260,000 and that the weighted average percentage calculated in Requirement 1 is used as an estimate of loses from uncollectible accounts for 2019 credit sales. Determine the bad debt expense for 2019 using the percentage of credit sales method. 3. CONCEPTUAL CONNECTION Do you believe this estimate of bad debt expense is reasonable? 4. CONCEPTUAL CONNECTION How would you estimate 2019 bad debt expense if losses from uncollectible accounts for 2018 were What other action would management consider?arrow_forwardBurger King 2017 2018 2019 C.R 1.06 1.07 1.29 Q.R 0.92 0.97 1.21 McDonald's Corp 2017 2018 2019 1.84 1.36 0.98 1.54 1.11 0.86 Yum! 2017 2018 2019 1.66 5.64 0.99 1.28 4.13 0.82 Comment on the ratios above and discuss Yum！ company's general ability to pay off its current liabilities.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning