Company Y:Asset Acquisition Strategy: Purchased assets in recent years at higher prices.Historical Cost Accounting: Records assets at historical cost.Debt Levels: Identical to Company X.Return on Assets Ratio: Identical to Company X.Question: The return on assets ratio is most likely:A. overstated for Company Y.B. overstated for both companies.C. overstated for Company X.D. accurate for both companies. Background: Two companies, X and Y, share identical return on assets ratios. However, theirasset acquisition strategies and the timing of purchases differ significantly. Company Xacquired most of its assets many years ago when prices were relatively low, while Company Ymade its acquisitions in recent years when prices were comparatively high. Both companiesmaintain identical debt levels and record their assets at historical cost.Company X:Asset Acquisition Strategy: Purchased assets many years ago at lower prices.Historical Cost Accounting: Records assets at historical cost.Debt Levels: Identical to Company Y.Return on Assets Ratio: Identical to Company Y.

Lets understand the basics.Return on asset ratio indicates that how much net income is generated…

Return on Assets Ratio: Identical to Company X. Question: The return on assets ratio is most likely: A. overstated for Company Y. B. overstated for both companies. C. overstated for Company X. D. accurate for both companies.

Return on Assets Ratio: Identical to Company X. Question: The return on assets ratio is most likely: A. overstated for Company Y. B. overstated for both companies. C. overstated for Company X. D. accurate for both companies.

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter14: Intercorporate Investments In Common Stock

Section: Chapter Questions

Problem 24E

See similar textbooks

Similar questions

Depreciation, Depletion, and Amortization: The Matching Concept. Depreciation, depletion, and amortization are allocation processes that distribute the acquisition cost of an asset to the many periods of the asset’s expected useful life. Discuss how these processes reflect the matching principle and why they are important to the measurement of corporate profitability
Examples of when an entity has retained substantially all the risks and rewards of ownership of transferred financial asset include A. All of these. B.A sale and repurchase transaction where the repurchase price is a fixed price or the sale price plus a lender's return. C.A sale of a financial asset together with a total return swap that transfers the market risk exposure back to the entity. D.A sale of short-term receivables in which the entity guarantees to compensate the transferee for credit losses that are likely to occur.
After conducting a thorough review of the company’s fi nancial statements, Martinez concludes the following:Conclusion 1 Although Stellar’s fi nancial statements adhere to generally accepted accounting principles (GAAP), Stellar understates earnings in periods whenthe company is performing well and overstates earnings in periods whenthe company is struggling.Conclusion 2 Stellar most likely understated the value of amortizable intangibles whenrecording the acquisition of Solar, Inc. last year. No goodwill impairmentcharges have been taken since the acquisition.Conclusion 3 Over time, the accruals component of Stellar’s earnings is large relative tothe cash component.Conclusion 4 Stellar reported an unusually sharp decline in accounts receivable in thecurrent year, and an increase in long-term trade receivables.2 . Based on Conclusion 2, after the acquisition of Solar, Stellar’s earnings are most likely :A . understated.B . fairly stated.C . overstated
After conducting a thorough review of the company’s fi nancial statements, Martinez concludes the following:Conclusion 1 Although Stellar’s fi nancial statements adhere to generally accepted accounting principles (GAAP), Stellar understates earnings in periods whenthe company is performing well and overstates earnings in periods whenthe company is struggling.Conclusion 2 Stellar most likely understated the value of amortizable intangibles whenrecording the acquisition of Solar, Inc. last year. No goodwill impairmentcharges have been taken since the acquisition.Conclusion 3 Over time, the accruals component of Stellar’s earnings is large relative tothe cash component.Conclusion 4 Stellar reported an unusually sharp decline in accounts receivable in thecurrent year, and an increase in long-term trade receivables.1 . Based on Martinez’s conclusions, Stellar’s fi nancial statements are best categorized as:A . non-GAAP compliant.B . GAAP compliant, but with earnings management.C . GAAP…
Under PFRS 3, when is a gain recognized in consolidating financial information? Group of answer choices a.When the amount of a bargain purchase exceeds the value of the applicable liability held by the acquired company. b.In an acquisition when the value of all assets and liabilities cannot be determined. c.When any bargain purchased is created d.In a combination created in the middle of the fiscal year
do not copy from bartleby and cheggggg King Company is contemplating the purchase of a smaller company, which is a distributor of King's products. Top management of King is convinced that the acquisition will result in significant synergies in its selling and distribution functions. The financial management group (of which you are a part) has been asked to analyze the effects of the acquisition on the combined company's financial statements. This is the first acquisition for King, and some of the senior staff insist that based on their recollection of goodwill accounting, any goodwill recorded on the acquisition will result in a “drag” on future earnings for goodwill amortization. Other younger members on the staff argue that goodwill accounting has changed. Your supervisor asks you to research this issue. Instructions Access the IFRS authoritative literature at the IASB website. When you have accessed the documents, you can use the search tool in your Internet browser to respond to…
Hobbes Corporation’s purchase of stock of Tiger Company gave Hobbes voting control over Tiger. A portion of the amount Hobbes paid reflects the fact that Tiger's inventories have a market value in excess of their book value.How should this portion of the cost be accounted for by Hobbes Corporation? Select one: a. Reported as goodwill on the balance sheet of Hobbes Corporation b. Amortized against investment revenue over the remaining useful life of the investment c. Included in the carrying value of the investment until disposition of the stock d. Added to the inventory cost on Hobbes's consolidated balance sheet
On January 1, Year 5, Pic Company acquired 7,500 ordinary shares of Sic Company for $708,000. On January 1, Year 6, Pic Company acquired an additional 2,000 ordinary shares of Sic Company for $212,000. On January 1, Year 5, the shareholders' equity of Sic was as follows: Ordinary shares (10,000 no par value shares issued) Retained earnings $200,000 303,000 $503,000 The following are the statements of retained earnings for the two companies for Years 5 and 6: Pic Year 5 Year 5 Retained earnings, beginning of year Profit Dividends Retained earnings, end of year $ 506,000 165,000 (100,000) $ 571,000 Year 6 $ 571,000 160,500 (120,000) $ 611,500 $ 303,000 118,500 (90,000) $ 331,500 Sic Year 6 $ 331,500 156,500 (90,000) $ 398,000
1 On January 1, 2021, Access IT Company exchanged $880,000 for 40 percent of the outstanding voting stock of Net Connect. Especially attractive to Access IT was a research project underway at Net Connect that would enhance both the speed and quantity of client-accessible data. Although not recorded in Net Connect's financial records, the fair value of the research project was considered to be $1,840,000. 01:58:38 In contractual agreements with the sole owner of the remaining 60 percent of Net Connect, Access IT was granted (1) various decision- making rights over Net Connect's operating decisions and (2) special service purchase provisions at below-market rates. As a result of these contractual agreements, Access IT established itself as the primary beneficiary of Net Connect. Immediately after the purchase, Access IT and Net Connect presented the following balance sheets: (Note: Parentheses indicate credit balances.) Cash Investment in Net Connect Capitalized software Computer…
On January 1, 2012, Aspen Company acquired 80 percent of Birch Company's outstanding voting stock for $438,000. Birch reported a $457,500 book value and the fair value of the noncontrolling interest was $109,500 on that date. Also, on January 1, 2013, Birch acquired 80 percent of Cedar Company for $200,000 when Cedar had a $205,000 book value and the 20 percent noncontrolling interest was valued at $50,000. In each acquisition, the subsidiary's excess acquisition-date fair over book value was assigned to a trade name with a 30-year life. These companies report the following financial information. Investment income figures are not included. Sales: Aspen Company Birch Company Cedar Company Expenses: Aspen Company Birch Company Cedar Company Dividends declared: Aspen Company Birch Company Cedar Company 2012 $ 632,500 261,250 Not available $ 542,500 200,000 Not available $15,000 8,000 Not available 2013 2014 $747,500 327,250 $822,500 416,900 185,900 292,600 $522,500 $750,000 261,000…
Analyze the influence of return on sales and asset turnover on the return on assets (ROA). Use absolute differences method. Year 200A Year 200B Sales, S'000 Profit, S'000 45612 46418 12116 12813 Assets, $'000 32745 33186
do not copy from bartleby King Company is contemplating the purchase of a smaller company, which is a distributor of King's products. Top management of King is convinced that the acquisition will result in significant synergies in its selling and distribution functions. The financial management group (of which you are a part) has been asked to analyze the effects of the acquisition on the combined company's financial statements. This is the first acquisition for King, and some of the senior staff insist that based on their recollection of goodwill accounting, any goodwill recorded on the acquisition will result in a “drag” on future earnings for goodwill amortization. Other younger members on the staff argue that goodwill accounting has changed. Your supervisor asks you to research this issue. Instructions Access the IFRS authoritative literature at the IASB website. When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following…