Question 1
1. Your company purchases another business at a bargain purchase properly accounted for as a business combination. They pay $1,000,000 for net assets that have a fair market value of $1,050,000. You are not certain how to account for the difference of $50,000. 2. Your company is developing computer software which will be sold directly to consumers. What activities make-up technological feasibility to determine which of the costs incurred can be capitalized? 3. Justify why you valued the inventory (goods for resale) at lower-of-cost or-market. 4. As the accountant for the Shoe-Horse Casino, you have been asked to determine if it is necessary to make an adjustment to the casino?s liability account for the outstanding gaming chips if it is believed that some will be unredeemable. 5. What financial instruments (financial assets and financial liabilities) are not eligible for an entity to use the fair value option of accounting? 6. Your business has closed for two weeks due to flooding, but fortunately you have business interruption insurance which covers the estimated lost gross margin (profit) due to the flooding. In the period the insurance recovery is recognized, what information should you disclose, if any, in the notes to the financial statements?
Question 2
Textbook: Supply Chain Management - A Logistics Perspective (8th Edition) Prepare a written case study for the following in APA format: Written Case Study Due ? Case 13-1 Chemtech Inc. ? answer all questions listed in the text for the case. (p. 588-589) 1. What problems are faced by Chemtech in the following areas: logistics and supply chain management, purchasing, and marketing? 2. What needs to be done at Chemtech to improve the functioning of its order fulfillment activities? 3. What do you think a supplier such as Potash should seek from its customers? 4. How can the customers of Chemtech become ?better? customers? What can Chemtech do to become a better supplier to its customers? 5. What options are available to Potash in the short term and the long term? Could an alliance between Chemtech and Potash help to solve some of the current problems between Chemtech and its supplier? 6. Which steps in the strategic sourcing methodology discussed in this chapter are in greatest need of improvement at Chemtech? Written Case Study Due ? Case 13-2 Durable Vinyl Siding Corporation ? answer all questions listed in the text for the case. (pp. 590-591) 1. What organizational changes would you suggest for DVS procurement? 2. What types of computerization changes would you recommend? 3. How would e-commerce benefit DVS procurement? 4. Would you recommend the same computer and e-commerce strategies for all 5,000 SKUs purchased? If not, how would these strategies differ? 5. What strategies do you suggest for maintaining procurement service levels?
Question 3
"1. VC VALUATION: SOUTHWEST VENTURES IS CONDIDERING AN INVESTMENT IN AN AUSTIN, TEXAS-BASED START-UP FIRM CALLED CREED AND COMPANY. CREED AND COMPANY IS INVOLVED IN ORGANIC GARDENING AND HAS DEVELOPED A COMPLETE LINE OF ORGANIC PRODUCTS OFR SALE TO THE PUBLIC THAT RANGES FROM COMPOSTED SOILS TO ORGANIC PESTICIDES. THE COMPANY HAS BEEN AROUND FOR ALMOST 20 YEARS AND HAS DEVELOPED A VERY GOOD REPUTATION IN THE AUSTIN BUSINESS COMMUNITY, AS WELL AS WITH THE MANY ORGANIC GARDENERS WHO LIVE IN THE AREA. LAST YEAR, CREED GENERATED EARNINGS BEFORE INTEREST, TAXES, AND DEPRECIATION (EBITDA) OF $4MILLION. THE COMPANY NEEDS TO RAISE $5.8 MILLION TO FINANCE THE ACQUISITION OF A SIMILAR COMPANY CALLED ORGANIC AND MORE THAT OPERATES IN BOTH THE HOUSTON AND DALLAS MARKETS. THE ACQUISITION WOULD MAKE IT POSSIBLE FOR CREED TO MARKET ITS PRIVATE-LABEL PRODUCTS TO A MUCH BROADER CUSTOMER HASE IN THE MAJOR METROPOLITAN AREAS OF TEXAS. MOREOVER, ORGANIC ANDMORE EARNED EBITDA OF $1 MILLION IS 2009. THE OWNERS OF CREED VIEW THE ACQUISITION AND ITS FUNDING AS A CRITICAL ELEMENT OF THEIR BUSINESS STRATEGY, BUT THEY ARE CONCERNED ABOUT HOW MUCH OF THE COMPANY THEY WILL HAVE TO GIVE UP TO A VENTURE CAPITALIST IN ORDER TO RAISE THE NEEDED FUNDS. CREED HIRED AN EXPERIENCED FINANCIAL CONSULTANT, IN WHOM THEY HAVE A GREAT DEAL OF TRUST, TO EVALUATE THE PROSPECTS OF RAISING THE NEEDED FUNDS. THE CONSULTANT ESTIMATED THAT THE COMPANY WOULD BE VALUED AT A MULIPLE OF FIVE TIMES EBITDA IN FIVE YEARS AND THAT CREED WOLD FROW THE COMBINED EBITDAS OF THE TWO COMPANIES AT A RATE OF 20% PER YEAR OVER THER NEXT FIVE YEARS IF THE ACQUISITION OF ORGANIC ANDMORE IS COMPLETED. NEITHER CREED NOR ITS ACQUISITION TARGET, ORGANIC AND MORE, USES DEBT FINANCING AT PERSENT. HOWEVER, THE VC HAS OFFERED TO PROVIDE THE ACQUISITION FINANCING IN THE FROM OF CONVERTIBLE DEBT THAT PAYS INTEREST AT A RATE OF 8% PER YEAR AND IS DUE AND PAYABE IN FINE YEARS. A. WHAT ENTERPRISE VALUE DO YOU ESTIMATE FOR CREED (INCLUDING THE PLANNED ACQUISITION) IN FINE YEARS? B. IF THE VC OFFERES TO FINANCE THE NEEDED FUNDS USING CONVERTIBLE DEBT THAT PAYS 8% PER YEAR AND CONVERTS TO A SHARE OF THE COMPANY SUFFICIENT TO PROVIDE A 25% RATE OF RETURN ON HIS INVESTMENT OVER THE NEXT FIVE YEARS. HOW MUCH OF THE FIRM?S EQUITY WILL HE DEMAND? C. WHAT FRACTION OF THE OWNERSHIP IN CREED WOULD THE VENTURE CAPITALIST REQUIRE IF CREED IS ABLE TO GROW ITS EBITDA BY 30% PER YEAR (ALL ELSE REMAINING THE SAME) AND THE VENTURE CAPITALIST STILL REQUIRES A 25% RATE OF RETURN OVER THE NEXT FIVE YEARS? 2. VALUING GOLD RECLAIMED FROM OLD PERSONAL COMPUTERS: A NUMBER OF INDUSTRIAL PRODUCTS INCLUDE GOLD AND SILVER AS A COMPONENT BECAUSE THEY HAVE VERY GOOD CONDUCTIVE PROPERTIES. THE S&M SMELTING COMPANY ENGAGES IN THE RECONVERY OF GOLD FROM SUCH PRODUCTS AND IS CONSIDERING A CONTRACT TO BEGIN EXTRACTING THE GOLD FROM THE RECYCLING OF PERSONAL COMPUTERS. THE PROJECT INVOLVES CONTRACTING WITH THE STATE GOVERNMENTS OF THREE MIDWESTERN STATES TO DESPOSE OF THEIR PCS. THE PROJECT WILL LAST FOR FIVE YEARS, AND THE CONTRACT CALLS FRO THE DISPOSAL OF 200,000 PCS PER YEAR. THERE TONS OF ELECTRONIC SCRAP CONTAINS APPROXIMATELY ONE TROY OUNCE OF GOLD. MOREOVER, EACH PC CONTAINS APPROXIMATELY 6 POUNDS OF ELECTRONIC SCRAP, AND THE PROCESSING COST INVOLVED IN EXTRACTING THE GOLD IS $67.50 PER TON OF SCRAP. IN ADDITION, THE CURRENT SPOT PRICE OF GOLD IS $592.80, AND THE FORWARD PRICE CURVE FOR THE PRICE PER OUNCE OF GOLD SPANNING THE NEXT FICE YEARS IS AS FOLLOWS: 2011 $679.40/OUNCE 2012 $715.10/OUNCE 2013 $750.60/OUNCE 2014 $786.90/OUNCE 2015 $822.80/OUNCE S&M ESTIMATES THAT THE FIRM?S COST OF CAPITAL IS 10.5%, AND THE RISK FREE RATE OF INTEREST ON FIVE-YEAR TREASURY BONDS IS CURRENTLY 5.0%. IN ADDITION, S&M FACES A 30% TAX RATE, AND THE ENTIRE INVESTMENT OF $450,000 MADE IN THE PROJECT IN 2010 WILL BE DEPRECIATED USING STRAIGHT-LINE DEPRECIATION OVER FIVE YEARS WITH A ZERO SALVAGE VALUE. A. ESTIMATE THE AFTER-TAX (CERTAINTY-EQUIVALENT) PROJECT FREE CASH FLOWS FOR THE PROJECT OVER ITS FIVE-YEAR PRODUCTIVE LIFE. B. USING THE CERTAINTY-EQUIVALENT VALUATION METHODOLOGY, ESTIMATE THE NPV OF THE PROJECT. C. IF WE ASSUME THAT GOLD PROCES WILL INVREASE AT A RATE OF 7% PER YEAR OVER THE NEXT FIVE YEARS, WHAT IS THE NPV OF PROJECT USING THE TRADITIONAL WACC METHOD OF ANALYSIS BASED ON EXPECTED PROJECT FREE CASH FLOW, WHERE THE WACC IS ESTIMATED TO BE 10.5%? WHAT RATE OF GROWTH IN GOLD PRICES IS REQUIRED TO PRODUCE THE SAME NPV USING THE TRADITIONAL WASS APPROACH AS WITH THE CERTAINTY-EQUIVALENT APPROACH USED IN PART B?
Question 4
FAU ACG 6375 - Business Valuations for Forensic Accountants Spring 2012 Semester Project ? Johnson Adhesives Background Frank Johnson is 55 years of age. Twenty years ago, Frank and his brother, John, founded Johnson Adhesives, Inc. (the Company). The Johnson family has always owned the business. Frank and John own 55% and 35%, of the common stock in the Company, respectively. A cousin owns the remaining 10% interest; he also works for the Company. Johnson Adhesives manufacturers adhesives and sealants and has annual revenues of approximately $50 million. It has six manufacturing locations throughout the U.S. Frank and John are both active in daily management and in making all major decisions. Frank has a MBA degree. John has never attended college. They both have extensive experience with the Company?s products and in all aspects of the operations. Frank and his wife, Susan, have been married for 25 years and are in the process of getting a divorce. Susan?s divorce attorney hired your boss, Maria, on behalf of his client to be an expert in the matrimonial litigation between Frank and Susan. Maria is a CPA specializing in forensic accounting and valuation. Frank made a financial offer to Susan in an attempt to quickly settle the divorce. Frank hired Valuations R Us to value his 55% equity interest in Johnson Adhesives. That firm has completed its work and issued a report. The value of Frank?s shares?as estimated by Valuations R Us?was used by Frank in making the settlement offer. Frank?s shares are a marital asset under state law and, accordingly, the value of the shares is a component of the total marital net worth. In addition, Frank and Susan live in a state that uses fair market value as the standard of value in divorce matters. Further, the divorce law in their state says that fair market value is the same definition as used by the Internal Revenue Service for tax purposes. Susan has told her attorney that the Company was writing off personal expenses of Frank and John (to lower taxable income and, therefore, income taxes) and both received large bonuses from the business. Susan was able to provide her attorney with the following information about the Company:[1] Personal expenses such as vacations, meals and entertainment, country club dues, and personal automobile expenses of $500,000 per year. The operating expenses of a private jet of $1 million per year and the jet is used for personal trips 50% of the jet?s usage. The compensation paid to Frank and John was $750,000 per year each. In 2007, the Company paid $1 million to settle a lawsuit brought by a former employee for an injury suffered while on the job. Susan's divorce attorney hired Maria to evaluate the valuation and sent a copy of valuation report prepared by Valuations R Us to your boss. Maria is a CPA specializing in forensic accounting and valuation. Maria has also learned the following. Johnson Adhesives previously filed an election with the U.S. Internal Revenue Service to be treated as an S-Corporation. Accordingly, the corporation does not pay income taxes. Rather, the Company?s income is allocated among the shareholders who then report their portion of the business?s income on their personal income tax returns and pay taxes. In addition, Frank and John are both in good health and expect to work for at least another 10 years. Your boss, Maria, has asked you to review the valuation of Frank?s stock as of December 31, 2009. Maria has provided you (1) the report of Valuations R Us plus Excel file containing Exhibit 2 to their report, (2) selected data from Stocks, Bonds, Bills, and Inflation ? 2009 Yearbook, Valuation Edition published by Morningstar (formerly published by Ibbotson Associates), and (3) a report on the industry. In addition, she has provided you the following additional information: ? The Company?s net income is the same as its net cash flow. ? The ?beta? of a large public company (BigCo) that submitted an offer to buy Johnson Adhesives one year ago is 1.1. ? The median price multiples of five public companies that are most comparable to Johnson Adhesives are: Median Market value of invested capital to sales 0.54 Market value of invested capital to EBITDA 5.80 Market value of invested capital to EBIT 7.26 Market value of equity to pre-tax income 6.72 Because of the circumstances, you do not have an opportunity to interview Frank Johnson or anyone else in management. You only can tell what Valuations R Us did by reading their report as you do not have an opportunity to talk with them about their report. Your assignment: You are a staff member at Maria?s firm. Maria asked you to critique the Valuations R Us? report and analysis. Prepare a persuasive memorandum to your boss that summarizes your findings and opinion. Managers are often short on time. Accordingly, prepare your memorandum so it is concise and focuses on only the most important issues. The memorandum should be at least 5 pages in length and double-spaced. Please see the accompanying Paper Guidelines for additional information on the writing components. A total of 75 points are allocated to the project as follows: memorandum content ? 50 points, and overall writing quality ? 25 point. Attachments: Valuations R US? valuation report Valuations R US? Exhibit 2 (Excel file) Morningstar (2009) information Industry Analysis (1 of 2) Industry Analysis (2 of 2) Please submit the deliverable through the eCollege Dropbox. MEMO GUIDELINES As you write your memo, keep in mind that it should be persuasive. When you set up the memo, you should present the material in a deductive, persuasive format as discussed in your GEB class. The following will help you in format the memo assignment. The Persuasive Structure Within your Introduction, state the question to be resolved in the case ? the key issues. You may also provide limited background material. The purpose of the background material is to provide the setting for the analysis. It is not to provide all of the facts that are pertinent to the analysis ? remember who your audience is. Transition to the balance of the paper by stating something similar to ?Here is my recommendation for how these issues should be addressed and the rationale behind my recommendation.? Following the introduction, provide your Recommendation. Be sure to present your position, and the main reasons supporting that position. These two elements make up your purpose statement and overview of your rationale. For example, your overall position might be ?The valuation ignores ?A? and incorrectly incorporates ?B.?? This statement is your ?overall position. You then need to support it with specific reasons WHY. Each reason why is an assertion or major support. As such, each assertion and the alternatives that you considered must be discussed in more detail within your rationale. This setup establishes the paper?s unity and provides cohesion. The Rationale provides support for the assertions contained in your overall position and discusses the alternatives. Each of the sections addressing an assertion needs to contain the argument statement that supports the overall position. In other words, be deductive. State the particular reason why you believe in your overall position and then present the facts, examples, quotes, logic to support it. Discussion of alternatives follows and includes basis for why the alternative is not recommended. The rationale ends with a concluding paragraph summarizing your overall position and the key supports (the assertions / arguments). Reminders for Writing the Memorandum q The memo deliverable for this assignment should begin something like: Date: November 15, 2006 To: Recipient?s Name From: Your Name Subject: Subject of memo q A specific format for the content of the memo is not prescribed as the format varies based on the situation being analyzed. The above Persuasive Structure provides general guidelines of how to structure your memo and you are strongly encouraged to use these guidelines when completing your assignment q Memos do not require an additional salutation (that is, ?Dear Mrs. Name?) or a complimentary closing (?Sincerely yours,?) at the end. q The memo should be at least 5 pages of text and must be individually written. q The memo should be double-spaced, with one inch margins all the way around and a normal (12 point) font size. q Write your memo to the audience indicated in the assignment. q Include professional literature cites to support your arguments in the valuation report. Include cites from professional literature, academic journals, and practitioner journals, as necessary. Be careful with Internet citations. q Use direct quotes sparingly--you are to write the memo as opposed to cutting and pasting together others' ideas. q Edit the memo--cut clutter, avoid expletives and vague references, be precise and concise. Read the paper out loud as you edit. q Proofread the memo and remember that spell check won't catch wrong words. q Check the grammatical elements, e.g., shifts in person, pronoun-antecedent disagreement, parallel construction, paragraph structure, etc. q Plan ahead! Do not wait for two days before the paper is due to start word processing it. You must have time to edit and proofread from a "distance." Attachments: http://vizedhtmlcontent.next.ecollege.com/CurrentCourse/Project%20-%20Johnson/Project%20-%20Valuations%20R%20Us%20Valuation%20report%20Final.pdf http://vizedhtmlcontent.next.ecollege.com/CurrentCourse/Project%20-%20Johnson/Project%20-%202009%20SBBI%20Yearbook%20-%20Key%20Variables.pdf http://vizedhtmlcontent.next.ecollege.com/CurrentCourse/Project%20-%20Johnson/Project%20-%20SIC%202891%20-all.pdf http://vizedhtmlcontent.next.ecollege.com/CurrentCourse/Project%20-%20Johnson/Project%20-%20SIC%202891%20-50-99.9mill..pdf
Question 5
39. Which one of the following does not suggest the presence of significant influence? A. One company holds 15 percent of the common stock of another company, but the remaining shares are widely dispersed. B. One company acquires 75 percent of another company's convertible bonds. C. A majority of the board of directors of one company is also on the board of directors of another company. D. One company holds an investment of 25 percent of the common stock of another company. 40. When using the equity method of accounting for an investment, as compared to the cost method, an investor will: A. record a greater amount of investment income B. record a smaller amount of investment income C. record either a greater or smaller amount of investment income D. record the same amount of investment income 41. On December 31, 2009, Rudd Company purchased 80 percent of the common stock of Wilton Company. At the time, Rudd held land with a book value of $100,000 and a fair value of $260,000; Wilton held land with a book value of $50,000 and fair value of $600,000. Using the parent company theory, at what amount would land be reported in a consolidated balance sheet prepared immediately after the combination? A. $550,000. B. $590,000. C. $700,000. D. $860,000.
