Harms Inc. reported in its 2006 annual report the following information: \[\begin{array}{l} \text { Plan Status: December 31, } 2006\\ \begin{array} { | l | r | } \hline \text { Accumulated Benefit Obligation (ABO) } & \$ 90 \text { Million } \\ \hline \text { Projected Benefit Obligation (PBO) } & \$ 95 \text { Million } \\ \hline \text { Plan Assets (at fair value) } & \$ 80 \text { Million } \\ \hline \text { Unrecognized transition asset } & \$ 11 \text { Million } \\ \hline \text { Unrecognized actuarial losses } & \$ 1 \text { Million } \\ \hline & \\ \hline \text { Assumptions: } & \\ \hline \text { discount rate } & 8 \% \\ \hline \text { return on assets } & 9 \% \\ \hline \text { compensation growth } &5\% \\ \hline \end{array} \end{array}\] -The estimated interest cost for 2007 is:

A) 7.95M. B) 7.60M. C) 7.36M. D) 7.20M. A) 7.95M. B) 7.60M. C) 7.36M. D) 7.20M. B

Reling Company reports the following information as of 12/31/05 $\begin{array}{|l|r|} \hline \text{10 \% cumulative preferred stock, par value\$ 10 and liquidation value}\\ \text{ \$ 11 ; 20,000shares authorized and issued: \$10.000 shares outstanding }& \$ 100,000 \\ \hline \begin{array}{l} \text { Common stock - authorized } 50,000 \text { and } 40,000 \\ \text { outstanding; } \$ 1 \text { par value } \end{array} & \$ 40,000 \\ \hline \text { Additional paid-in-capital } & \$ 350,000 \\ \hline \text { Retained Earnings } & \$ 230,000 \\ \hline \end{array}$ -The book value per share of common stock is:

A) $12.20 B) $12.40 C) $15.25 D) $15.50 A) $12.20 B) $12.40 C) $15.25 D) $15.50

Recording a long-term lease as an operating lease, as opposed to a capital lease, for a lessee will cause the following ratios to be: \[\begin{array} { | l | c | c | } \hline & \text { Debt/Equity } & \text { Total Asset Turnover } \\ \hline \text { A) } & \text { Higher } & \text { Lower } \\ \hline \text { B) } & \text { Higher } & \text { Higher } \\ \hline \text { C) } & \text { Lower } & \text { Higher } \\ \hline \text { D) } & \text { Lower } & \text { Lower } \\ \hline \end{array}\]

A) Option A B) Option B C) Option C D) Option D A) Option A B) Option B C) Option C D) Option D

Exam 3: Analyzing Financing Activities

If a company increases its discount rate for the purposes of calculating its pension obligations, the accumulated benefit obligation and the projected benefit obligation will both decrease.

Free

(True/False)

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Question 1

Correct Answer:

Verified

True

Harms Inc. reported in its 2006 annual report the following information: Plan Status: December 31, 2006 Accumulated Benefit Obligation (ABO) \ 90 Million Projected Benefit Obligation (PBO) \ 95 Million Plan Assets (at fair value) \ 80 Million Unrecognized transition asset \ 11 Million Unrecognized actuarial losses \ 1 Million Assumptions: discount rate 8\% return on assets 9\% compensation growth 5\% -The estimated interest cost for 2007 is:

Free

(Multiple Choice)

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Question 2

Correct Answer:

Verified

B

Which of the following is not a component of pension expense?

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(Multiple Choice)

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Question 3

Correct Answer:

Verified

C

Reling Company reports the following information as of 12/31/05 10 \% cumulative preferred stock, par value\ 10 and liquidation value \ 11 ; 20,000shares authorized and issued: \1 0.000 shares outstanding \ 100,000 Common stock - authorized 50,000 and 40,000 outstanding; \ 1 par value \ 40,000 Additional paid-in-capital \ 350,000 Retained Earnings \ 230,000 -The book value per share of common stock is:

(Multiple Choice)

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Question 4

The difference between the accumulated benefit obligation (ABO) and the projected benefit obligation (PBO) is:

(Multiple Choice)

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Question 5

Synthetic leases may achieve all of the following benefits to the borrower except:

(Multiple Choice)

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Question 6

Which of the following is not an actuarial assumption underlying the computation of the pension obligation?

(Multiple Choice)

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Question 7

A lessee must account for a lease as a capital lease if: I. lease transfers ownership to lessee at the end of the lease. II. lease contains option to purchase the asset at the end of the lease at a bargain price. III. lease is longer than 20 years. IV. present value of lease is greater than 10% of lessee's assets.

(Multiple Choice)

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Question 8

Which of the following is not a component of recognized OPEB cost?

(Multiple Choice)

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Question 9

Which of the following lease provisions would cause a lease to be classified as an operating lease?

(Multiple Choice)

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Question 10

Pension accounting for defined benefit plans requires that retroactive adjustments to the plan (prior service costs) be recognized immediately in full in the pension expense.

(True/False)

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Question 11

If a company increases its expected rate of compensation increase for the purposes of calculating its pension obligations, the accumulated benefit obligation and the projected benefit obligation will both increase.

(True/False)

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Question 12

Recording a long-term lease as an operating lease, as opposed to a capital lease, for a lessee will cause the following ratios to be: Debt/Equity Total Asset Turnover A) Higher Lower B) Higher Higher C) Lower Higher D) Lower Lower

(Multiple Choice)

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Question 13

Which of the following is true concerning bond covenants?

(Multiple Choice)

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Question 14

Funding of pension plans is required by GAAP.

(True/False)

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Question 15

A company which leases a piece of machinery (the lessee) will record it as a sales-type lease if the lessor makes a profit on the lease.

(True/False)

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Question 16

An SPE investor may secure its investment with a guarantee so that the SPE remains unconsolidated.

(True/False)

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Question 17

Which of the following statements about stock dividends is true?

(Multiple Choice)

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Question 18

You are considering purchasing a company - assets, liabilities, warts and all. You are aware that sometimes liabilities do not always show up on the balance sheet. Give five examples of liabilities that may not be explicitly recognized on the balance sheet, being sure to explain why they are liabilities.

(Essay)

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Question 19

The par value of common stock represents the price at which the company offered its stock to investors when it made its initial public offering.

(True/False)

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Question 20

If a company increases its discount rate for the purposes of calculating its pension obligations, the accumulated benefit obligation and the projected benefit obligation will both decrease.

Which of the following is not a component of pension expense?

The difference between the accumulated benefit obligation (ABO) and the projected benefit obligation (PBO) is:

Synthetic leases may achieve all of the following benefits to the borrower except:

Which of the following is not an actuarial assumption underlying the computation of the pension obligation?

Which of the following is not a component of recognized OPEB cost?

Which of the following lease provisions would cause a lease to be classified as an operating lease?

Pension accounting for defined benefit plans requires that retroactive adjustments to the plan (prior service costs) be recognized immediately in full in the pension expense.

If a company increases its expected rate of compensation increase for the purposes of calculating its pension obligations, the accumulated benefit obligation and the projected benefit obligation will both increase.

Recording a long-term lease as an operating lease, as opposed to a capital lease, for a lessee will cause the following ratios to be: Debt/Equity Total Asset Turnover A) Higher Lower B) Higher Higher C) Lower Higher D) Lower Lower

Which of the following is true concerning bond covenants?

Funding of pension plans is required by GAAP.

A company which leases a piece of machinery (the lessee) will record it as a sales-type lease if the lessor makes a profit on the lease.

An SPE investor may secure its investment with a guarantee so that the SPE remains unconsolidated.

Which of the following statements about stock dividends is true?

The par value of common stock represents the price at which the company offered its stock to investors when it made its initial public offering.

Overview of Financial Statement Analysis

Financial Reporting and Analysis

Analyzing Investing Activities

Analyzing Investing Activities: Intercorporate Investments

Analyzing Operating Activities

Cash Flow Analysis

Return on Invested Capital and Profitability Analysis

Prospective Analysis

Credit Analysis

Equity Analysis and Valuation

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