Heywood Enterprises is a famous entertainment company that produces films and operates theme parks, among other things. The company is also well known as a profitable and well-managed business. On November 15, 2010 08, the following article appeared in the financial section of the local newspaper:
"Heywood Reports Fiscal 4th-Period Loss after Taking $166 Million Write-Down."
Heywood Enterprises reported a $64 million net loss for its fiscal fourth quarter ended Sept. 30, after writing down a record $166 million in movies and other properties.
In the year-earlier quarter, Heywood had net income of $24.5 million, or 70 cents a share. Fourth-quarter revenue this year rose 28% to $463.2 million from $363 million.
In the fiscal year, the entertainment company's earnings rose 5% to $97.8 million, or $2.73 a share, from $93.2 million, or $2.70 a share, a year earlier. Revenue rose 27% to $1.66 billion from $1.31 billion.
The company said it wrote down $112 million in motion picture and television properties.
The write-down involves productions that already have been released as well as ones still under development, but Heywood declined to identify the productions or projects involved.
"This just reflects the judgment of new management about the ultimate value of projects we had under way," said Marcia Fennel, Heywood's executive vice president for finance.
The company also said it charged off $40 million to reflect the "abandonment" of a number of planned projects at its various theme parks. An additional $14 million was charged off as a reserve to cover possible legal obligations resulting from the company's fight to ward off a pair of successive takeover attempts last summer, Ms. Fennel said.
Heywood said its full-year net income included a $76 million extraordinary gain. The change will boost that quarter's reported net income to $85 million, from $9 million.
a. What two categories of issues does the user of financial statements want to consider when evaluating the quality of a company's reported earnings? Did Heywood have one or both types of items in fiscal 2010 08?
a. Which comparisons do you believe give the best picture of Heywood's performance?
b. Compare the fourth-period earnings or losses for 2009 and 2010 and full fiscal 2009 and 2010 earnings or losses before and after adjusting for the item or items described in

When Alternative Acceptable Accounting Methods Exist, a Better Quality of Earnings

Multiple Choice

Correct Answer:VerifiedUnlock this answer nowGet Access to more Verified Answers free of chargeAccess For Free

Correct Answer:
Verified
Unlock this answer now
Get Access to more Verified Answers free of charge