CHAPTER 2 FINANCIAL STATEMENTS‚ CASH FLOW‚ AND TAXES True/False Easy: (2.1) Annual report F K Answer: a EASY 1. The annual report contains four basic financial statements: the income statement‚ balance sheet‚ statement of cash flows‚ and statement of stockholders’ equity. a. True b. False (2.1) Annual report and expectations F K Answer: a EASY 2. The primary reason the annual report is important in finance
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Integrated Case 3-16 D¡¦Leon Inc.‚ Part I Financial Statements and Taxes Donna Jamison‚ a 2000 graduate of the University of Florida with 4 years of banking experience‚ was recently brought in as assistant to the chairman of the board of D¡¦Leon Inc.‚ a small food producer that operates in north Florida and whose specialty is high-quality pecan and other nut products sold in the snack-foods market. D¡¦Leon¡¦s president‚ Al Watkins‚ decided in 2004 to undertake a major expansion and to ¡§go
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changes Harnischfeger made in 1984 as stated in Note 2 of its financial statements. In 1984‚ the Corporation has computed depreciation expense on plants‚ machinery and equipment using the straight-line method for financial reporting purposes. Prior to 1984‚ the Corporation used principally accelerated methods for its U.S. operating plants. 2. What is the effect of the depreciation accounting method change on the reported income in 1984? How will this change affect profits in future years? The cumulative
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project is expected to produce annual sales of $75‚000 with associated costs of $57‚000. The project has a 5-year life. The company uses straight-line depreciation to a zero book value over the life of the project. The tax rate is 30 percent. What is the operating cash flow for this project? OCF = net income + depr (Sales-cost) * (1-T) + depreciation * T OCF = (Sales – Costs)(1 – tC) + tCDepreciation OCF = 75000-57000)(1 – 0.3) + 0.3($115‚000/5) = 18000*.7 = 12600 + 6900 =19500 XYZ is
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on 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)? Because of the change method of the depreciation from a straight line to the accelerated‚ therefore‚ there is recognition of a more depreciation expense up front and there is no decrease that is experienced. There is also a decrease in the ESP ratio
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successor auditor failed to request this information from the newly acquired Little Drummer Boy Inc. By requesting this information and communicating with the predecessor auditor‚ the successor auditor could have reviewed the working papers of depreciation expense and also become clear of the reasoning for the useful lives used in the
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Financial Accounting (BEA 2001) Tutorials PROPERTY‚ PLANT & EQUIPMENT Question 1: Measurement at recognition; components; depreciation Olympic plc is a diversified industrial company with many different areas of operation. The following information relates to the company’s property‚ plant and equipment. The company has a 30 September year end. All the plant was purchased and brought into use on 1 October 20X1 at a cost of £800 000. The cost of testing the plant amounted to £45 000 and samples
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title to assets may be desirable as a hedge against inflation. 2. Interest rates for leasing often are higher and a profit factor may be included in addition. 3. In some cases‚ owning the asset provides unique tax advantages‚ such as when bonus depreciation is permitted. (c) Since a long-term noncancelable lease which is used as a financing device generally results in
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Chapter 13 Risk Analysis and Project Evaluation 13-1. Crusik Distribution Company thinks that there are two possible outcomes for its new facial care product: Either it will be very successful‚ or customers will not appreciate its “unique appeal.” The two outcomes are equally likely‚ but the successful outcome obviously comes with higher revenues. We can picture the situation like this: 50% 40% 30% 20% 10% 0% $1‚000‚000 $5‚000‚000 Thus Crusik’s revenues will be either $1M or $5M. The expected
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Historical Cost the company carries the asset on the balance sheet at the purchase cost less any depreciation taken. At the time of sale‚ the company records a gain or a loss against the purchase cost of an asset less any depreciation if applicable. For example if Tom purchased an asset for $5‚000 and estimated depreciation expense of $500 per yr for 10 yrs the cost of asset after the 1st yr less depreciation is $4500. If the market value of the asset were $4800 after one year in the open market Tom
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