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Chapter 24: 7Q (page 1445)
What are diversified companies? What accounting problems are related to diversified companies?
The diversified company has the characteristics of offering different or mixed trimming structures but has lower than normal returns due to market risks and lots of complexities.
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The following statement is an excerpt from the FASB pronouncement related to interim reporting. Interim financial information is essential to provide investors and others with timely information as to the progress of the enterprise. The usefulness of such information rests on the relationship that it has to the annual results of operations. Accordingly, the Board has concluded that each interim period should be viewed primarily as an integral part of an annual period. In general, the results for each interim period should be based on the accounting principles and practices used by an enterprise in the preparation of its latest annual financial statements unless a change in an accounting practice or policy has been adopted in the current year. The Board has concluded, however, that certain accounting principles and practices followed for annual reporting purposes may require modification at interim reporting dates so that the reported results for the interim period may better relate to the results of operations for the annual period.
Instructions
The following six independent cases present how accounting facts might be reported on an individual company’s interim financial reports. For each of these cases, state whether the method proposed to be used for interim reporting would be acceptable under generally accepted accounting principles applicable to interim financial data. Support each answer with a brief explanation.
a) J. D. Long Company takes a physical inventory at year-end for annual financial statement purposes. Inventory and cost of sales reported in the interim quarterly statements are based on estimated gross profit rates, because a physical inventory would result in a cessation of operations. Long Company does have reliable perpetual inventory records.
(Horizontal and Vertical Analysis) Presented below is the comparative balance sheet for Gilmour Company.
GILMOUR COMPANY COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2018 AND 2017 | ||
December 31 | ||
2018 | 2017 | |
Assets | ||
Cash | \( 180,000 | \) 275,000 |
Accounts receivable (net) | 220,000 | 155,000 |
Short-term investments | 270,000 | 150,000 |
Inventories | 1,060,000 | 980,000 |
Prepaid expenses | 25,000 | 25,000 |
Plant & equipment | 2,585,000 | 1,950,000 |
Accumulated depreciation | (1,000,000) | (750,000) |
\(3,340,000 | (2,785,000) | |
Liabilities and Stockholders’ Equity | ||
Accounts payable | \) 50,000 | \( 75,000 |
Accrued expenses | 170,000 | 200,000 |
Bonds payable | 450,000 | 190,000 |
Common stock | 2,100,000 | 1,770,000 |
Retained earnings | 570,000 | 550,000 |
\)3,340,000 | (2,785,000) |
Instructions
(Round to two decimal places.)
(Dividend Policy Analysis) Matheny Inc. went public 3 years ago. The board of directors will be meeting shortly after the end of the year to decide on a dividend policy. In the past, growth has been financed primarily through the retention of earnings. A stock or a cash dividend has never been declared. Presented below is a brief financial summary of Matheny Inc.’s operations.
(\(000 omitted) | |||||
2018 | 2017 | 2016 | 2015 | 2014 | |
Sales revenue | \)20,000 | \(16,000 | \)14,000 | \(6,000 | \)4,000 |
Net income | 2,400 | 14,000 | 800 | 700 | 250 |
Average total assets | 22,000 | 19,000 | 11,500 | 4,200 | 3,000 |
Current assets | 8,000 | 6,000 | 3,000 | 1,200 | 1,000 |
Working capital | 3,600 | 3,200 | 1,200 | 500 | 400 |
Common shares: Number of shares Outstanding (000) Average market price | 2,000 \(9 | 2,000 \)6 | 2,000 $4 | 20 - | 20 - |
Instructions
Foley Corporation has seven industry segments with total revenues as follows.
Penley \(600 Cheng \)225
Konami 650 Takuhi 200
KSC 250 Molina 700
Red Moon 275
Based only on the revenues test, which industry segments are reportable?
Carlton Company is involved in four separate industries. The following information is available for each of the four industries.
Operating Segment | Total Revenue | Operating Profit (Loss) | Identifiable Assets |
W | \( 60,000 | 15,000 | \)167,000 |
X | 10,000 | 3,000 | 83,000 |
Y | 23,000 | (2,000) | 21,000 |
Z | 9,000 | 1,000 | 19,000 |
\(102,000 | \)17,000 | $290,000 |
Instructions
Determine which of the operating segments are reportable based on the:
a) Revenue test.
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