CFA二级培训项目：经典题 财报（打印版）

FinancialReportingandAnalysis

CFA二级培训项目

1-450

Reading13

IntercorporateInvestments

2-450

Case:Cinnamon,Inc.

Cinnamon,Inc.isadiversifiedmanufacturingcompanyheadquarteredintheUnitedKingdom.ItcomplieswithIFRS.In2009,Cinnamonhelda19percentpassiveequityownershipinterestinCambridgeProcessingthatwasclassifiedasavailable-for-sale.Duringtheyear,thevalueofthisinvestmentroseby£2million.InDecember2009,Cinnamonannouncedthatitwouldbeincreasingitsownershipinterestto50percenteffective1January2010throughacashpurchase.CinnamonandCambridgehavenointercompanytransactions.

PeterLubbock,ananalystfollowingbothCinnamonandCambridge,iscurioushowtheincreasedstakewillaffectCinnamon’sconsolidatedfinancialstatements.

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Case:Cinnamon,Inc.

►

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Case:Cinnamon,Inc.

►

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Case:Cinnamon,Inc.

HeasksCinnamon’sCFOhowthecompanywillaccountfortheinvestment,andistoldthatthedecisionhasnotyetbeenmade.Lubbockdecidestousehisexistingforecastsforbothcompanies’financialstatementstocomparetheoutcomesofalternativeaccountingtreatments.

LubbockassemblesabbreviatedfinancialstatementdataforCinnamon

(Exhibit1)andCambridge(Exhibit2)forthispurpose.

4-450

Exhibit1.SelectedFinancialStatementInformationforCinnamon,Inc.(£Millions)

Yearending31December

2009

2010*

Revenue

1,400

1,575

Operatingincome

126

142

Netincome

62

69

31December

2009

2010*

Totalassets

1,170

1,317

Shareholders’equity

616

685

*EstimatesmadepriortoannouncementofincreasedstakeinCambridge.

Exhibit2.SelectedFinancialStatementInformationforCambridge

Processing(£Millions)

Yearending31December

2009

2010*

Revenue

1,000

1,100

Operatingincome

80

88

Netincome

40

44

Dividendspaid

20

22

31December

2009

2010*

Totalassets

800

836

Shareholders’equity

440

462

*EstimatesmadepriortoannouncementofincreasedstakeinCambridge.

Case:Cinnamon,Inc.

In2010,ifCinnamonisdeemedtohavecontroloverCambridge,itwillmostlikelyaccountforitsinvestmentinCambridgeusing:

theequitymethod.

theacquisitionmethod.

proportionateconsolidation.

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Case:Cinnamon,Inc.

Answer:B

IfCinnamonisdeemedtohavecontroloverCambridge,itwouldusetheacquisitionmethodtoaccountforCambridgeandprepareconsolidatedfinancialstatements.Proportionateconsolidationisusedforjointventures;theequitymethodisusedforsomejointventuresandwhenthereissignificantinfluencebutnotcontrol.

8-450

Case:Cinnamon,Inc.

At31December2010,Cinnamon’sshareholders’equityonitsbalancesheetwouldmostlikelybe:

highestifCinnamonisdeemedtohavecontrolofCambridge.

independentoftheaccountingmethodusedfortheinvestmentinCambridge.

highestifCinnamonisdeemedtohavesignificantinfluenceoverCambridge.

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Case:Cinnamon,Inc.

Answer:A

IfCinnamonisdeemedtohavecontroloverCambridge,consolidatedfinancialstatementswouldbepreparedandCinnamon’sshareholders’equitywouldincreaseandincludetheamountofthenoncontrollinginterest.IfCinnamonisdeemedtohavesignificantinfluence,theequitymethodwouldbeusedandtherewouldbenochangeintheshareholders’equityofCinnamon.

10-450

Case:Cinnamon,Inc.

In2010,Cinnamon’snetprofitmarginwouldbehighestif:

itisdeemedtohavecontrolofCambridge.

ithadnotincreaseditsstakeinCambridge.

itisdeemedtohavesignificantinfluenceoverCambridge.

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Case:Cinnamon,Inc.

Answer:C

IfCinnamonisdeemedtohavesignificantinfluence,itwouldreporthalfofCambridge’snetincomeasalineitemonitsincomestatement,butnoadditionalrevenueisshown.ItsprofitmarginisthushigherthanifitconsolidatedCambridge’sresults,whichwouldimpactrevenueandincome,orifitonlyreported19percentofCambridge’sdividends(nochangeinownership).

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Case:Cinnamon,Inc.

Answer:C

Thefullandpartialgoodwillmethodwillhavethesameamountofdebt;however,shareholders’equitywillbehigherunderfullgoodwill(andthedebttoequityratiowillbelower).Therefore,thedebttoequitywillbehigherunderpartialgoodwill.Ifcontrolisassumed,Cinnamoncannotusetheequitymethod.

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Case:Cinnamon,Inc.

ComparedtoCinnamon’soperatingmarginin2009,ifitisdeemedtohavecontrolofCambridge,itsoperatingmarginin2010willmostlikelybe:

lower.

higher.

thesame.

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Case:Cinnamon,Inc.

At31December2010,assumingcontrolandrecognitionofgoodwill,Cinnamon’sreporteddebttoequityratiowillmostlikelybehighestifitaccountsforitsinvestmentinCambridgeusingthe:

equitymethod.

fullgoodwillmethod.

partialgoodwillmethod.

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Case:Zimt,AG

GelblumgathersabbreviatedfinancialstatementdataforZimt(Exhibit

andOxbow(Exhibit2)forthispurpose.

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Case:Cinnamon,Inc.

Answer:A

Cambridgehasaloweroperatingmargin(88/1,100=8.0%)thanCinnamon(142/1,575=9.0%).IfCambridge’sresultsareconsolidatedwithCinnamon’s,theconsolidatedoperatingmarginwillreflectthatofthecombinedcompany,or230/2,675=8.6%.

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Case:Zimt,AG

Zimt,AGisaconsumerproductsmanufacturerheadquarteredinAustria.ItcomplieswithIFRS.In2009,Zimthelda10percentpassivestakeinOxbowLimitedthatwasclassifiedasheldfortradingsecurities.Duringtheyear,thevalueofthisstakedeclinedby€3million.InDecember2009,Zimtannouncedthatitwouldbeincreasingitsownershipto50percenteffective1January2010.

FranzGelblum,ananalystfollowingbothZimtandOxbow,iscurioushowtheincreasedstakewillaffectZimt’sconsolidatedfinancialstatements.BecauseGelblumisuncertainhowthecompanywillaccountfortheincreasedstake,heuseshisexistingforecastsforbothcompanies’financialstatementstocomparevariousalternativeoutcomes.

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Exhibit1.SelectedFinancialStatementEstimatesforZimtAG(€Millions)

Yearending31December

2009

2010*

Revenue

1,500

1,700

Operatingincome

135

153

Netincome

66

75

31December

2009

2010*

Totalassets

1,254

1,421

Shareholders’equity

660

735

*EstimatesmadepriortoannouncementofincreasedstakeinOxbow.

Case:Zimt,AG

►

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Exhibit2.SelectedFinancialStatementEstimatesforOxbowLimited(€Millions)

Yearending31December

2009

2010*

Revenue

1,200

1,350

Operatingincome

120

135

Netincome

60

68

Dividendspaid

20

22

31December

2009

2010*

Totalassets

1,200

1,283

Shareholders’equity

660

706

*EstimatesmadepriortoannouncementofincreasedstakebyZimt.

Case:Zimt,AG

At31December2010,Zimt’stotalassetsbalancewouldmostlikelybe:

highestifZimtisdeemedtohavecontrolofOxbow.

highestifZimtisdeemedtohavesignificantinfluenceoverOxbow.

unaffectedbytheaccountingmethodusedfortheinvestmentinOxbow.

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Case:Zimt,AG

Answer:A

Whenacompanyisdeemedtohavecontrolofanotherentity,itrecordsalloftheotherentity’sassetsonitsownconsolidatedbalancesheet.

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Case:Zimt,AG

BasedonGelblum’sestimates,ifZimtisdeemedtohavesignificantinfluenceoverOxbow,its2010netincome(in€Millions)wouldbeclosestto:

A.€75.

B.€109.

C.€143.

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Case:Zimt,AG

Answer:B

IfZimtisdeemedtohavesignificantinfluence,itwouldusetheequitymethodtorecorditsownership.Undertheequitymethod,Zimt’sshareofOxbow’snetincomewouldberecordedasasinglelineitem.NetincomeofZimt=75+0.5(68)=109.

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Case:Zimt,AG

BasedonGelblum’sestimates,ifZimtisdeemedtohavejointcontrolofOxbow,andZimtusestheproportionateconsolidationmethod,its31December2010totalliabilities(in€Millions)willmostlikelybeclosestto:

A.€686.

B.€975.

C.€1,263.

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Case:Zimt,AG

Answer:B

Undertheproportionateconsolidationmethod,Zimt’sbalancesheetwouldshowitsowntotalliabilitiesof€1,421−735=€686plushalfofOxbow’sliabilitiesof€1,283−706=€577.€686+(0.5X577)=€974.5.

25-450

Case:Zimt,AG

BasedonGelblum’sestimates,ifZimtisdeemedtohavecontroloverOxbow,its2010consolidatedsales(in€Millions)willbeclosestto:

A.€1,700.

B.€2,375.

C.€3,050.

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Case:Zimt,AG

Answer:C

Undertheassumptionofcontrol,Zimtwouldrecorditsownsalesplus100percentofOxbow’s.€1,700+1,350=€3,050.

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Case:Zimt,AG

BasedonGelblum’sestimates,Zimt’snetincomein2010willmostlikelybe:

highestifZimtisdeemedtohavecontrolofOxbow.

highestifZimtisdeemedtohavesignificantinfluenceoverOxbow.

independentoftheaccountingmethodusedfortheinvestmentinOxbow.

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Case:Zimt,AG

Answer:C

Netincomeisnotaffectedbytheaccountingmethodusedtoaccountforactiveinvestmentsinothercompanies.“One-lineconsolidation”andconsolidationresultinthesameimpactonnetincome;itisthedisclosurethatdiffers.

29-450

Case:BurtonHoward

BurtonHoward,CFA,isanequityanalystwithMaplewoodSecurities.HowardispreparingaresearchreportonConfabulatedMaterials,SA,apubliclytradedcompanybasedinFrancethatcomplieswithIFRS.Aspartofhisanalysis,HowardhasassembleddatagatheredfromthefinancialstatementfootnotesofConfabulated’s2009AnnualReportandfromdiscussionswithcompanymanagement.HowardisconcernedabouttheeffectofthisinformationonConfabulated’sfutureearnings.

InformationaboutConfabulated’sinvestmentportfoliofortheyearsended31December2008and2009ispresentedinExhibit1.Aspartof

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Case:BurtonHoward

hisresearch,HowardisconsideringthepossibleeffectonreportedincomeofConfabulated’saccountingclassificationforfixedincomeinvestments.

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Exhibit1.Confabulated’sInvestmentPortfolio(€Thousands)

Characteristic

BugleAG

CathayCorp

DumasSA

Classification

Available-for-sale

Held-to-maturity

Held-to-maturity

Cost*

€25,000

€40,000

€50,000

Marketvalue,31

December2008

29,000

38,000

54,000

Marketvalue,31

December2009

28,000

37,000

55,000

*Allsecuritieswereacquiredatparvalue.

Case:BurtonHoward

Inaddition,Confabulated’sannualreportdiscussesatransactionunderwhichreceivablesweresecuritizedthroughaspecialpurposeentity(SPE)forConfabulated’sbenefit.

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Case:BurtonHoward

The balancesheetcarryingvalue of Confabulated’s investmentportfolio(in€thousands)at31December2009isclosestto:

A.112,000.

B.115,000.

C.118,000.

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Case:BurtonHoward

Answer:C

Heldfortradingandavailable-for-salesecuritiesarecarriedatmarketvalue,whereasheld-to-maturitysecuritiesarecarriedathistoricalcost.€28,000+40,000+50,000=€118,000.

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Case:BurtonHoward

ThebalancesheetcarryingvalueofConfabulated’sinvestmentportfolioat31December2009wouldhavebeenhigherifwhichofthesecuritieshadbeenreclassifiedasaheldfortradingsecurity?

Bugle.

Cathay.

Dumas.

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Case:BurtonHoward

Answer:C

IfDumashadbeenclassifiedasaheldfortradingsecurity,itscarryingvaluewouldhavebeenthe€55,000fairvalueratherthanthe€50,000historicalcost.

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Case:BurtonHoward

ComparedtoConfabulated’sreportedinterestincomein2009,ifDumashadbeenclassifiedasavailable-for-sale,theinterestincomewouldhavebeen:

lower.

thesame.

higher.

37-450

Case:BurtonHoward

Answer:B

Thecouponpaymentisrecordedasinterestincomewhethersecuritiesareheld-to-maturityoravailable-for-sale.Noadjustmentisrequiredforamortizationsincethebondswereboughtatpar.

38-450

Case:BurtonHoward

ComparedtoConfabulated’sreportedearningsbeforetaxesin2009,ifBuglehadbeenclassifiedasaheldfortradingsecurity,theearningsbeforetaxes(in€thousands)wouldhavebeen:

thesame.

€1,000lower.

€3,000higher.

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Case:BurtonHoward

Answer:B

Unrealizedgainsandlossesareincludedinincomewhensecuritiesareclassifiedasheldfortradingsecurities.During2009therewasanunrealizedlossof€1,000.

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Case:BurtonHoward

Confabulated’sreportedinterestincomewouldbelowerifthecostwasthesamebuttheparvalue(in€thousands)of:

Buglewas€28,000.

Cathaywas€37,000.

Dumaswas€55,000.

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Case:BurtonHoward

Answer:B

Thedifferencebetweenhistoricalcostandparvaluemustbeamortizedundertheeffectiveinterestmethod.Iftheparvalueislessthantheinitialcost(statedinterestrateisgreaterthantheeffectiverate),theinterestincomewouldbelowerthantheinterestreceivedbecauseofamortizationofthepremium.

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Case:BurtonHoward

Confabulated’sspecialpurposeentityismostlikelytobe:

heldoff-balancesheet.

consolidatedonConfabulated’sfinancialstatements.

consolidatedonConfabulated’sfinancialstatementsonlyifitisa“qualifyingSPE.”

43-450

Case:BurtonHoward

Answer:B

UnderIFRS,SPEsmustbeconsolidatediftheyareconductedforthebenefitofthesponsoringentity.Further,underIFRS,SPEscannotbeclassifiedasqualifying.UnderUSGAAP,qualifyingSPEs(aclassificationwhichhasbeeneliminated)donothavetobeconsolidated.

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Case:BetterCareHospitals,Inc.

BetterCareHospitals,Inc.operatesachainofhospitalsthroughouttheUnitedStates.Thecompanyhasbeenexpandingbyacquiringlocalhospitals.Itslargestacquisition,thatofStatewideMedical,wasmadein2001underthepoolingofinterestsmethod.BetterCarecomplieswithUSGAAP.

BetterCareiscurrentlyforminga50/50jointventurewithSupremeHealthcareunderwhichthecompanieswillsharecontrolofseveralhospitals.BetterCareplanstousetheequitymethodtoaccountforthejointventure.SupremeHealthcarecomplieswithIFRSandwillusetheproportionateconsolidationmethodtoaccountforthejointventure.

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Case:BetterCareHospitals,Inc.

►

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Case:BetterCareHospitals,Inc.

ErikOhalinisanequityanalystwhocoversbothcompanies.Hehasestimatedthejointventure’sfinancialinformationfor2010inordertopreparehisestimatesofeachcompany’searningsandfinancialperformance.ThisinformationispresentedinExhibit1.

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Exhibit1.SelectedFinancialStatementForecastsforJointVenture($Millions)

Yearending31December

2010

Revenue

1,430

Operatingincome

128

Netincome

62

31December

2010

Totalassets

1,500

Shareholders’equity

740

Case:BetterCareHospitals,Inc.

SupremeHealthcarerecentlyannouncedithadformedaspecialpurposeentitythroughwhichitplanstosellupto$100millionofitsaccountsreceivable.SupremeHealthcarehasnovotinginterestintheSPE,butitisexpectedtoabsorbanylossesthatitmayincur.OhalinwantstoestimatetheimpactthiswillhaveonSupremeHealthcare’sconsolidatedfinancialstatements.

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Case:BetterCareHospitals,Inc.

Comparedtoaccountingprinciplescurrentlyinuse,thepoolingmethodBetterCareusedforitsStatewideMedicalacquisitionhasmostlikelycauseditsreported:

revenuetobehigher.

totalequitytobelower.

totalassetstobehigher.

49-450

Case:BetterCareHospitals,Inc.

Answer:B

StatewideMedicalwasaccountedforunderthepoolingofinterestmethod,whichcausesallofStatewide’sassetsandliabilitiestobereportedathistoricalbookvalue.Theexcessofassetsoverliabilitiesgenerallyislowerusingthehistoricalbookvaluemethodthanusingthefairvaluemethod(thislattermethodmustbeusedundercurrentlyrequiredacquisitionaccounting).Itwouldhavenoeffectonrevenue.

50-450

Case:BetterCareHospitals,Inc.

BasedonOhalin’sestimates,theamountofjointventurerevenue(in$millions)includedonBetterCare’sconsolidated2010financialstatementsshouldbeclosestto:

A.$0.

B.$715.

C.$1,430.

51-450

Case:BetterCareHospitals,Inc.

Answer:A

Undertheequitymethod,BetterCarewouldrecorditsinterestinthejointventure’snetprofitasasinglelineitem,butwouldshownoline-by-linecontributiontorevenuesorexpenses.

52-450

Case:BetterCareHospitals,Inc.

BasedonOhalin’sestimates,theamountofjointventurenetincomeincludedontheconsolidatedfinancialstatementsofeachventurerwillmostlikelybe:

higherforBetterCare.

higherforSupremeHealthcare.

thesameforbothBetterCareandSupremeHealthcare.

53-450

Case:BetterCareHospitals,Inc.

Answer:C

Netincomewillbethesameundertheequitymethodandproportionalconsolidation.However,sales,costofsales,andexpensesaredifferentbecauseundertheequitymethodtheneteffectofsales,costofsales,andexpensesisreflectedinasingleline.

54-450

Case:BetterCareHospitals,Inc.

BasedonOhalin’sestimates,theamountofthejointventure’s31December2010totalassets(in$millions)thatwillbeincludedonSupremeHealthcare’sconsolidatedfinancialstatementswillbeclosestto:

A.$0.

B.$750.

C.$1,500.

55-450

Case:BetterCareHospitals,Inc.

Answer:B

Undertheproportionateconsolidationmethod,SupremeHealthcare’sconsolidatedfinancialstatementswillincludeits50percentshareofthejointventure’stotalassets.

56-450

Case:BetterCareHospitals,Inc.

BasedonOhalin’sestimates,theamountofjointventureshareholders’equityat31December2010includedontheconsolidatedfinancialstatementsofeachventurerwillmostlikelybe:

higherforBetterCare.

higherforSupremeHealthcare.

thesameforbothBetterCareandSupremeHealthcare.

57-450

Case:BetterCareHospitals,Inc.

Answer:C

Thechoiceofequitymethodorproportionateconsolidationdoesnotaffectreportedshareholders’equity.

58-450

Case:BetterCareHospitals,Inc.

IfSupremeHealthcaresellsitsreceivablestotheSPE,itsconsolidatedfinancialresultswillmostlikelyshow:

ahigherrevenuefor2010.

thesamecashbalanceat31December2010.

thesameaccountsreceivablebalanceat31December2010.

59-450

Case:BetterCareHospitals,Inc.

Answer:C

AlthoughSupremeHealthcarehasnovotinginterestintheSPE,itisexpectedtoabsorbanylossesthattheSPEincurs.Therefore,SupremeHealthcare“insubstance”controlstheSPEandwouldconsolidateit.Ontheconsolidatedbalancesheet,theaccountsreceivablebalancewillbethesamesincethesaletotheSPEwillbereverseduponconsolidation.

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Case:PercyByron

Case:PercyByron

PercyByron,CFA,isanequityanalystwithaUK-basedinvestmentfirm.OnefirmByronfollowsisNinMountPLC,aUK-basedcompany.On31December2008,NinMountpaid£320milliontopurchasea50percentstakeinBoswellCompany.TheexcessofthepurchasepriceoverthefairvalueofBoswell’snetassetswasattributabletopreviouslyunrecordedlicenses.Theselicenseswereestimatedtohaveaneconomiclifeofsixyears.ThefairvalueofBoswell’sassetsandliabilitiesotherthanlicenseswasequaltotheirrecordedbookvalues.NinMountandBoswellbothusethepoundsterlingastheirreportingcurrencyandpreparetheirfinancialstatementsinaccordancewithIFRS.

Byronisconcernedwhethertheinvestmentshouldaffecthis“buy”

61-450

ratingonNinMountcommonstock.HeknowsNinMountcouldchooseoneofseveralaccountingmethodstoreporttheresultsofitsinvestment,butNinMounthasnotannouncedwhichmethoditwilluse.Byronforecaststhatbothcompanies’2009financialresults(excludinganymergeraccountingadjustments)willbeidenticaltothoseof2008.

NinMount’sandBoswell’scondensedincomestatementsfortheyearended31December2008,andcondensedbalancesheetsat31December2008,arepresentedinExhibits1and2,respectively.

Case:PercyByron

►

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Exhibit1.NinMountPLCandBoswellCompanyIncome

StatementsfortheYearEnded31December2008(£Millions)

NinMount

Boswell

Netsales

950

510

Costofgoodssold

(495)

(305)

Sellingexpenses

(50)

(15)

Administrativeexpenses

(136)

(49)

Depreciation&amortizationexpense

(102)

(92)

Interestexpense

(42)

(32)

Incomebeforetaxes

125

17

Incometaxexpense

(50)

(7)

Netincome

75

10

Exhibit2.NinMountPLCandBoswellCompanyBalanceSheetsat

31December2008(£Millions)

NinMount

Boswell

Cash

50

20

Receivables—net

70

45

Inventory

130

75

Totalcurrentassets

250

140

Property,plant,&equipment—net

1,570

930

InvestmentinBoswell

320

—

Totalassets

2,140

1,070

Case:PercyByron

►

64-450

Case:PercyByron

Exhibit2.NinMountPLCandBoswellCompanyBalanceSheetsat31December2008(£Millions)(Cont’d)

Currentliabilities

110

90

Long-termdebt

600

400

Totalliabilities

710

490

Commonstock

850

535

Retainedearnings

580

45

Totalequity

1,430

580

Totalliabilitiesandequity

2,140

1,070

►

Note:BalancesheetsreflectthepurchasepricepaidbyNinMount,butdonotyetconsidertheimpactoftheaccountingmethodchoice.

65-450

Case:PercyByron

NinMount’scurrentratioon31December2008mostlikelywillbehighestiftheresultsoftheacquisitionarereportedusing:

theequitymethod.

consolidationwithfullgoodwill.

consolidationwithpartialgoodwill.

66-450

Case:PercyByron

Answer:A

ThecurrentratiousingtheequitymethodofaccountingisCurrentassets/Currentliabilities=£250/£110=2.27.Usingconsolidation(eitherfullorpartialgoodwill),thecurrentratio=£390/£200=

1.95.Therefore,thecurrentratioishighestusingtheequity

method.

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Case:PercyByron

NinMount’slong-termdebttoequityratioon31December2008mostlikelywillbelowestiftheresultsoftheacquisitionarereportedusing:

theequitymethod.

consolidationwithfullgoodwill.

consolidationwithpartialgoodwill.

68-450

Case:PercyByron

Answer:A

Usingtheequitymethod,long-termdebttoequity=£600/£1,430

=0.42.Usingtheconsolidationmethod,long-termdebttoequity

=long-termdebt/equity=£1,000/£1,750=0.57.Equityincludesthe£320noncontrollinginterestundereitherconsolidation.Itdoesnotmatterifthefullorpartialgoodwillmethodisusedsincethereisnogoodwill.

69-450

Case:PercyByron

BasedonByron’sforecast,ifNinMountdeemsithasacquiredcontrolofBoswell,NinMount’sconsolidated2009depreciationandamortizationexpense(in£Millions)willbeclosestto:

A.102.

B.148.

C.204.

70-450

Case:PercyByron

Answer:C

TheprojecteddepreciationandamortizationexpensewillincludeNinMount’sreporteddepreciationandamortization(£102),Boswell’sreporteddepreciationandamortization(£92),andamortizationofBoswell’slicenses(£10million).Thelicenseshaveafairvalueof£60million.£320purchasepriceindicatesafairvalueof£640forthenetassetsofBoswell.Thenetbook(fair)valueoftherecordedassetsis£580.Thepreviouslyunrecordedlicenseshaveafairvalueof£60million.Thelicenseshavearemaininglifeofsixyears;theamortizationadjustmentfor2008willbe£10million.Therefore,Projecteddepreciationandamortization=£102

+£92+£10=£204million.

71-450

Case:PercyByron

BasedonByron’sforecast,NinMount’snetprofitmarginfor2009mostlikelywillbehighestiftheresultsoftheacquisitionarereportedusing:

theequitymethod.

consolidationwithfullgoodwill.

consolidationwithpartialgoodwill.

72-450

Case:PercyByron

Answer:A

Netincomeisthesameusinganyofthemethodsbutundertheequitymethod,netsalesareonly£950;Boswell’ssalesarenotincludedinthenetsalesfigure.Therefore,netprofitmarginishighestusingtheequitymethod.

73-450

Case:PercyByron

BasedonByron’sforecast,NinMount’s2009returnonbeginningequitymostlikelywillbethesameunder:

eitheroftheconsolidations,butdifferentundertheequitymethod.

The equity method, consolidation with full goodwill, andconsolidationwithpartialgoodwill.

noneoftheequitymethod,consolidationwithfullgoodwill,orconsolidationwithpartialgoodwill.

74-450

Case:PercyByron

Answer:A

Netincomeisthesameusinganyofthechoices.Beginningequityundertheequitymethodis£1,430.Undereitheroftheconsolidations,beginningequityis£1,750sinceitincludesthe

£320noncontrollinginterest.Returnonbeginningequityishighest

undertheequitymethod.

75-450

Case:PercyByron

BasedonByron’sforecast,NinMount’s2009totalassetturnoverratioonbeginningassetsundertheequitymethodismostlikely:

lowerthaniftheresultsarereportedusingconsolidation.

thesameasiftheresultsarereportedusingconsolidation.

higherthaniftheresultsarereportedusingconsolidation.

76-450

Case:PercyByron

Answer:A

Usingtheequitymethod,Totalassetturnover=Netsales/Beginningtotalassets=£950/£2,140=0.444.Totalassetturnoveronbeginningassetsusingconsolidation=£1,460/£2,950

=0.495.Underconsolidation,Assets=£2,140−320+1,070+60

=£2,950.Therefore,totalassetturnoverislowestusingtheequity

method.

77-450

Case:JohnThronen

JohnThronenisananalystintheresearchdepartmentofaninternationalsecuritiesfirm.HeispreparingaresearchreportonTopmaker,Inc.,apubliclytradedcompanythatcomplieswithIFRS.

On1January2016,Topmakerinvested$11millioninBlancaCo.debtsecurities(witha5.0%statedcoupononparvalue,andinterestpayableeach31December).Theparvalueofthesecuritiesis$10million,andthemarketinterestrateineffectwhenthebondswerepurchasedwas4.0%.Topmakerdesignatestheinvestmentasheldtomaturity.Asof31December2016,thefairvalueofthesecuritiesis$12million.

78-450

Case:JohnThronen

BlancaCo.wantstoraise$40millionincapitalbyborrowingagainstitsfinancialreceivables.Blancaplanstocreateaspecial-purposeentity(SPE),invest$10millionintheSPE,havetheSPEborrow$40million,andthenusethefundstopurchase$50millionofreceivablesfromBlanca.BlancameetsthedefinitionofcontrolandplanstoconsolidatetheSPE.Blanca’sbalancesheetispresentedinExhibit1.

►

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Case:JohnThronen

►

81-450

Exhibit1.BlancaCo.BalanceSheetat31December2016($

millions)

Cash

20

Currentliabilities

25

Accountsreceivable

50

Noncurrentliabilities

30

Otherassets

30

Shareholders’equity

45

Totalassets

100

Totalliabilitiesandequity

100

Case:JohnThronen

Alsoon1January2016,Topmakeracquireda15%equityinterestwithvotingpowerinRainerCo.for$300million.TopmakerhasrepresentationonRainer’sboardofdirectorsandparticipatesinRainer’spolicymakingprocess.ThronenbelievesthatTopmakerunderestimatedthegoodwillandbalancesheetvalueofitsinvestmentaccountinRainer.Toestimatethesefigures,ThronengathersselectedfinancialinformationforRainerasof31December2016inExhibit

2.Theplantandequipmentaredepreciatedonastraight-linebasis

andhave10yearsofremaininglife.

80-450