Financial Statement Analysis Case General Electric A Wall Street Journal article discussed a $1.8…

Financial Statement Analysis Case General Electric A Wall Street Journal article discussed a $1.8…


Financial Statement Analysis Case

General Electric

A Wall Street Journal article discussed a $1.8 billion charge to income made by General Electric for postretirement benefit costs. It was attributed to previously unrecognized healthcare and life insurance cost. As financial vice president and controller for Peake, Inc., you found this article interesting because the president recently expressed interest in adopting a postemployment benefit program for Peake’s employees, to complement the company’s existing defined benefit plan. The president, Martha Beyerlein, wants to know how the expense on the new plan will be determined and what impact the accounting for the plan will have on Peake’s financial statements.

Instructions

(a) As financial vice president and controller of Peake, Inc., explain the calculation of postemployment benefit expense under GAAP, and indicate how the accounting for the plan will affect Peake’s financial statements.

(b) Discuss the similarities and differences in the accounting for the other postemployment benefit plan relative to the accounting for the defined benefit plan.

 

Financial Statement Analysis Case General Electric A Wall Street Journal article discussed a $1.8…

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Accounting, Analysis, and Principles PENCOMP’s balance sheet at December 31, 2014, is as follows….

Accounting, Analysis, and Principles PENCOMP’s balance sheet at December 31, 2014, is as follows….

Accounting, Analysis, and Principles

PENCOMP’s balance sheet at December 31, 2014, is as follows.

Accounting

Prepare an income statement for 2015 and a balance sheet as of December 31, 2015. Also, prepare the pension expense journal entry for the year ended December 31, 2015. Round to the nearest tenth (e.g., round 2.87 to 2.9).

Analysis

Compute return on equity for PENCOMP for 2015 (assume stockholders’ equity is equal to year-end average stockholders’ equity). Do you think an argument can be made for including some or even all of the change in accumulated other comprehensive income (due to pensions) in the numerator of return on equity? Illustrate that calculation.

Principles

Explain a rationale for why the FASB has (so far) decided to exclude from the current period income statement the effects of pension plan amendments and gains and losses due to changes in actuarial assumptions.

 

Accounting, Analysis, and Principles PENCOMP’s balance sheet at December 31, 2014, is as follows….

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BRIDGE TO THE PROFESSION Professional Research: FASB Codification Monat Company has grown rapidly…

BRIDGE TO THE PROFESSION Professional Research: FASB Codification Monat Company has grown rapidly…


BRIDGE TO THE PROFESSION

Professional Research: FASB Codification

Monat Company has grown rapidly since its founding in 2004. To instill loyalty in its employees, Monat is contemplating establishment of a defined benefit plan. Monat knows that lenders and potential investors will pay close attention to the impact of the pension plan on the company’s financial statements, particularly any gains or losses that develop in the plan. Monat has asked you to conduct some research on the accounting for gains and losses in a defined benefit plan.

Instructions

If your school has a subscription to the FASB Codification, go to http://aaahq.org/ascLogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses.

(a) Briefly describe how pension gains and losses are accounted for.

(b) Explain the rationale behind the accounting method described in part (a).

(c) What is the related pension asset or liability that will show up on the balance sheet? When will each of these situations occur?

 

 

BRIDGE TO THE PROFESSION Professional Research: FASB Codification Monat Company has grown rapidly…

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An analyst has collected the following information regarding a company in advance of its year-end…

An analyst has collected the following information regarding a company in advance of its year-end…

An analyst has collected the following information regarding a company in advance of its year-end earnings announcement (in millions):

Th e analyst’s estimate of ending retained earnings (in millions) should be closest to:

A. $1,300.

B. $1,500.

C. $1,700.

 

An analyst has collected the following information regarding a company in advance of its year-end…

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An analyst has compiled the following information regarding Rubsam, Inc. There have been no…

An analyst has compiled the following information regarding Rubsam, Inc. There have been no…

An analyst has compiled the following information regarding Rubsam, Inc.

There have been no distributions to owners. The analyst’s most likely estimate of total assets at year-end should be closest to:

A. €2,100.

B. €2,300.

C. €2,800.

 

 

An analyst has compiled the following information regarding Rubsam, Inc. There have been no…

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Consolidated Motors is a US-based corporation that sells mechanical engines and components used…

Consolidated Motors is a US-based corporation that sells mechanical engines and components used…

Consolidated Motors is a US-based corporation that sells mechanical engines and components used by electric utilities. Its Canadian subsidiary, Consol-Can, operates solely in Canada. It was created on 31 December 20X1, and Consolidated Motors determined at that time that it should use the US dollar as its functional currency. Chief Financial Officer Monica Templeton was asked to explain to the board of directors how exchange rates affect the financial statements of both Consol-Can and the consolidated

financial statements of Consolidated Motors. For the presentation, Templeton collects Consol-Can’s balance sheets for the years ended 20X1 and 20X2 (Exhibit 1), as well as relevant exchange rate information (Exhibit 2).

 

Templeton explains that Consol-Can uses the FIFO inventory accounting method and that purchases of C$300 million and the sell-through of that inventory occurred evenly throughout 20X2. Her presentation includes reporting the translated amounts in US dollars for each item, as well as associated translation-related gains and losses. Th e board responds with several questions.

• Would there be a reason to change the functional currency to the Canadian dollar?

• Would there be any translation effects for Consolidated Motors if the functional currency for Consol-Can were changed to the Canadian dollar?

• Would a change in the functional currency have any impact on financial statement ratios for the parent company?

• What would be the balance sheet exposure to translation effects if the functional currency were

changed?

 

In response to the board’s fourth question, the balance sheet exposure (in C$ millions) would be closest to:

A. –19.

B. 148.

C. 400.

 

Consolidated Motors is a US-based corporation that sells mechanical engines and components used…

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Romulus Corp. is a US-based company that prepares its financial statements in accordance with US…

Romulus Corp. is a US-based company that prepares its financial statements in accordance with US…

Romulus Corp. is a US-based company that prepares its financial statements in accordance with US GAAP. Romulus Corp. has two European subsidiaries: Julius and Augustus. Anthony Marks, CFA, is an analyst trying to forecast Romulus’s 20X2 results. Marks has prepared separate forecasts for both Julius and Augustus, as well as for Romulus’s other operations (prior to consolidating the results.) He is now considering the impact of currency translation on the results of both the subsidiaries and the parent company’s consolidated financials. His research has provided the following insights:

• Th e results for Julius will be translated into US dollars using the current rate method.

• Th e results for Augustus will be translated into US dollars using the temporal method.

• Both Julius and Augustus use the FIFO method to account for inventory.

• Julius had year-end 20X1 inventory of €340 million. Marks believes Julius will report €2,300 in sales and €1,400 in cost of sales in 20X2. Marks also forecasts the 20X2 year-end balance sheet for Julius (Exhibit 1). Data and forecasts related to euro/dollar exchange rates are presented in Exhibit 2.

 

 

Relative to the gross margins the subsidiaries report in local currency, Romulus’s consolidated  gross margin most likely:

A. will not be distorted by currency translations.

B. would be distorted if Augustus were using the same translation method as Julius.

C. will be distorted because of the translation and inventory accounting methods Augustus is using.

 

Romulus Corp. is a US-based company that prepares its financial statements in accordance with US…

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Redline Products, Inc. is a US-based multinational with subsidiaries around the world. One such…

Redline Products, Inc. is a US-based multinational with subsidiaries around the world. One such…

Redline Products, Inc. is a US-based multinational with subsidiaries around the world. One such subsidiary,  Acceletron, operates in Singapore, which has seen mild but not excessive rates

of inflation.  Acceletron was acquired in 2000 and has never paid a dividend. It records inventory

using the FIFO method. Chief Financial Officer Margot Villiers was asked by Redline’s board of directors to explain how the functional currency selection and other accounting choices affect  Redline’s consolidated financial statements. Villiers gathers Acceletron’s financial statements denominated in Singapore dollars (SGD) in Exhibit 1 and the US dollar/Singapore dollar exchange rates in Exhibit 2. She

does not intend to identify the functional currency actually in use but rather to use Acceletron as an example of how the choice of functional currency affects the consolidated statements.

 

When translating Acceletron’s financial statements into US dollars, Redline is least likely to use an exchange rate of USD per SGD:

A. 0.671.

B. 0.588.

C. 0.654.

 

 

Redline Products, Inc. is a US-based multinational with subsidiaries around the world. One such…

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