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Exercise1-3P45Steps1,2,3,4a.step1,2—although bothcurrent assetsand currentliabilities grow,the growthof theformer isslower thanthe latter.C urre ntratio2006:-==.87-$128,9OO~2005二$
35.625・$
62.500・$
82.500・$
9.375-=
2.52・2004二$36,800+$49,200・$53,000+$4,000〜==.9~一$30-800—S
88.52006:$-128Q:岔+今2005:35至~2004:75,25Step3计算比率至十〜3d8+
49.NStep4:comment:Both thecurrent andacid-test ratiosshow decliningtrends.Although wedo nothave information aboutthe natureof the company*s business,the acid-test ratioshift from6l.75,down to
0.93and thecurrent ratioshift from290down to
1.87indicate apotential liquidityproblem.Still,we mustrecognize thatindustry standardsmay showthat the2004ratios weretoo highinstead of2006ratios astoo low.The developmentof Mixonhas beenfar awayfrom theindustrylevel from2004to
2006.As awhole,its short-term liquidityposition hasweakened overthis two-year periodandwe cansee risksbecome heavier.Wed betterconcern aboutits debt.Exercise1-13P47Bond price=Present valuePV ofcash flowsboth interest payments andprincipalrepaymenta.-*Present value of interestpaymentsWPayment$100x10%=$10per yearat endof eachyearordinary annuity-1PVini=$10x PVfactor for an ordinary annuityn=5,i=14%fe$10x
3.43308$
34.33二f Presentvalue ofprincipal repayment:^F PVJMW=$100x PVfactor foralumpsum n=5t[=14%=$100x
0.51937=
551.94^-Price=PV of interestpaymentsPV ofprincipal repayment=$
34.33+$
51.94=$
86.27^b.f Interestpayments$1,000x8%=$80annually:^〃PVw=$80x Presentvalue factorfor anordinaryannuityn=5;j.=6%te,$80x
4.21236=$
336.99Principal repayment$1,000in5years hencePVfMwi=$1,000x Presentvalue factorfor alump sumn=5;l=6%fe$1,000x
0.74726=$
747.264—Price=$
336.99+$
747.26=$1,
084.25^Exercise3-3P141Va.A lesseewould accountforacapital leaseas anasset andan obligationat the inception of the lease,vDr.fixed assets^Cr.Long-term leasedebt v卜The firstyear ofthe lease:Dr.Man Exp*-1Cr.Depreciation^Dr.Accounts payable^Cr.CashKRental paymentsduring theyear would be allocatedbetween areduction in the obligation andinterest expense.The assetwould beamortized in a mannerconsistent withthe lesseesnormal depreciationpolicy forownedassets,except thatin somecircumstances theperiod ofamortization would be the lease term*b.No assetor obligationwouldbe recorded attheinceptionofthelease.Normally,rental onan operatingleasewould becharged toexpense overtheleaseterm asit becomespayable,vThe firstyear ofthe leaserDr.Man Exp*-1Cr.Loan payable4-1If rentalpayments arenot madeonastraight-line basis,rental expensenevertheless wouldbe recognizedon astraight-line basisunless anothersystematic orrational basisis morerepresentative ofthe timepattern in whichuse benefitis derivedfrom theleased property,inwhichcase thatbasis wouldbe used*Exercise3-7P142a.One reasonthat managersmight wantto resistrecording aliability relatedto anongoing lawsuitI thinkis that therecorded liabilitycan causedeterioration in the financialposition ofthe company.Once theydo,it maymakeshareholders loseconfidence.A secondreason isthat theprobability andthe estimatedamounts ofloss cannot beconfirmed clearlyand itmay beunderestimated oroverestimated.b.If amanager believesthat itis inevitablethat aliability willbe recorded,for instance,the verdictis in,the managermaychoose totime therecognition ofthe liabilityopportunistically.If thecompany has a relativelybad period,theliability can berecorded in conjunctionwith abig bath.^^While if thecompanyhasavery goodperiod,the managermightfind thatthe liabilitycanberecordedinthat periodwithout causingan unexpectedlybad earningsreport.Additionally,iftheoverall economyis indepression,the managermay alsodo it.Exercise4-3P188a.iiiP163-l64,iii TheLIFO methodis basedon theassumption thatthe latestgoods purchased are the first sold.Asa result,the inventoryis atthe oldestless recent purchase prices,while cost of goodssold isat morerecent purchaseprices.举例P163-164五角星b.In aninflationary economy,LIFO providesa bettermatching ofcurrent costswith currentrevenue onthe incomestatementbecause costof goodssold isat morerecentpurchaseprices.The useof LIFOcan reduceor delaytaxpayments,which isunpopular withthe governments.In short,the managementuses itfor manipulatingprofits tocontrolthe inventory.c.Where thereis evidencethatthevalueof inventory to be disposedofin the ordinarycourse ofbusiness willbe lessthancost,the differenceshould berecognized asa lossinthecurrent period.This isdone bythe generallyacceptedprinciple of inventory valuationlowerof costor market.Dr.ExpenseCr.Provision forinventory devaluationTheconcept ofconservatism,yielding inventoryreported atthe lowerof costor market,is theprimary justificationof thisapproach.Exercise4-6In aperiod ofrising inventorycosts,the mostrecently purchasedunits aremore expensive.Under theLIFO assumption,thelast unitspurchasedarethefirsttobesold,and therefore,the costof goodssold is higher underLIFO andlower under FIFO.And thennet incomeishigher underFIFOthan underLIFO whenoutput pricesare stable.Also,the endinginventory assetvalueand totalassets arehigherunderFIFO andlower underLIFO.In contrast,inaperiod ofdeclining inventorycosts andstableoutput prices,all willreverse.Exercise6-4P290Comprehensive incomecomputation:*a.Computation:b.Balance sheetaccounts affected:$1,000,000Net income-100,000+Fair valueof availablefor salesecurities declines50,000Foreign currencytranslation gain-75,000the difference between pension expense and actual fundingUnrealized holdinglosses on■12,000derivative instruments$
863.000Comprehensive incomeExercise6-10P292a.Research anddevelopment costsare expensedintheyear thatthey areincurred inincomestatement.This meansRD costsimpact currentincome dollarfor dollar.Also,future benefits are undoubtedlycreatedbymany RDactivities andthese expenditureswouldbecapitalized.But thesebenefitsareof uncertaintyand itsaviolation ofthe matchingprinciple inrelating coststo revenuesin determiningfuture income,Which limitRDcapitalizationb.RD expendituresat FrontierBiotech decreasedsubstantially infiscal