Exam 4: Analyzing Investing Activities

Under current US GAAP, goodwill is: I. amortized over a period not to exceed 40 years. II. tested annually for impairment. III. exclusive of separately identifiable intangible assets. IV. recorded only upon purchase of another entity.

Target Inc. has 30M shares outstanding and trades at $50 per share. Target has net identifiable assets with a book value of $1,000M and a fair value of $1,200M. Acquirer Corporation purchases all of Target Inc. stock for $60 per share. How much will Acquirer record as goodwill upon acquiring Target?

When the discounted amount of expected cash flows from an asset is greater than the asset's book value, the asset is deemed to be impaired.

Which of the following is not an effect of capitalization?

During fiscal 2006, Huy sold fully depreciated assets that originally cost $20,000 for $4,000. In 2006, they purchased assets that cost:

Goodwill is:

Which of the following statements about inventories is true?

Changes in inventory levels have been shown to be useful in predicting future sales and earnings.

Financial Statements of ABC Corp. indicates that ending inventory levels in 2005 and 2006 were $200,000 and $350,000 respectively. Cost of Goods sold for 2005 and 2006 were $1,900,000 and $2,200,000 respectively. Purchases in 2006 were:

An asset is considered to be liquid if:

Companies are supposed to write-down value of assets if a permanent impairment of value or loss of utility occurs. If a company writes down its assets this year the effect on: This year's ROA Next year's ROA A) Increased No change B) Decreased No change C) Decreased Decreased D) Decreased Increased

Below is selected information taken from the balance sheet of Huy Corporation as of 12/31/06. 12/31/05 12/31/06 Land \ 100,000 \ 100,000 Machines 80,000 70,000 Gross P,P\&E 180,000 170,000 Accumulated depreciation \ 25,000 \ 10,000 Net P,P\&E \ 155,000 \ 160,000 Depreciation expense \ 5,000 -The average depreciable life of Huy's depreciable assets as of 2006 is:

Which of the following would not be classified as a current asset?

Below are selected numbers extracted from Harnischfeger's Year X2 financial statements (numbers are in thousands). Sales \ 2,887,570 \ 2,184,287 COGS \ 2,166,775 \ 1,671,932 Current Assets \ 1,410,250 \ 1,213,390 Current Liabilities \ 1,077,127 \ 723,303 Harnischfeger's Footnote on inventories is as follows (numbers in thousands): Inventories at October 31 consisted of the following: Finished Goods \ 198,160 \ 211,555 Work in Process and purchased parts 278,671 170,027 Raw Materials 611,279 488,581 Less excess of current cost over stated LIFO value \ 547,115 \ 416,395 Inventories valued using the LIFO method represented approximately 56% and 80% of consolidated inventories at October 31, X2 and X1, respectively. a. Calculate for Year X2: i) the gross margin percentage ii) the current ratio iii) inventory turnover iv) Estimate the following numbers if Harnischfeger used FIFO for all inventories: v) the gross margin vi) the current ratio vii) nventory turnover b. Compare your answers in part a) and b) and comment.

An increasing accounts receivables balance is always a good sign as it means the company has more current assets and is more liquid.

For Control Furniture Co., LIFO Reserve in Year 2006 $91 million LIFO Reserve in Year 2005$82 million Tax Rate is 35%. To restate Year 2006 LIFO inventories to a FIFO basis, we use the following analytical entry: A) Inventories 91 Deferred Tax Payable 31.85 Retained Earnings 59.15 B) Inventories 91 Deferred Tax Payable 35.65 Retained Earnings 55.35 C) Inventories 91 Deferred Tax Payable 38.96 Retained Earnings 52.04 D) Inventories 91 Deferred Tax Payable 32.85 Retained Earnings 58.15

If management underestimates the allowance for non-collectible accounts, this will cause net income for the period to be overstated.

One advantage of FIFO over LIFO is that it minimizes the distortion caused by inflation on net income.

Indicate which of the following items would be classified as assets on the balance sheets. a. Raw Materials b. Goodwill c. Post-retirement health obligations d. Deferred revenues e. Foreign currency translation adjustments f. All software development costs g. Loans to employee h. Purchased trademarks i. Cost of developing patent j. Prepaid insurance k. Company's preferred stock l. Advances from customers m. Discount on bond payable n. Premium on bond payable

Below is selected information taken from the balance sheet of Huy Corporation as of 12/31/06. 12/31/05 12/31/06 Land \ 100,000 \ 100,000 Machines 80,000 70,000 Gross P,P\&E 180,000 170,000 Accumulated depreciation \ 25,000 \ 10,000 Net P,P\&E \ 155,000 \ 160,000 Depreciation expense \ 5,000 -The average age of Huy's depreciable assets as of 2006 is: