时间证明Chapter 03 - Analyzing Financing Activities
It has long been recognized that no income accrues to the shareholder as a result of such stock distributions or dividends, nor is there any change in either the corporate assets or the shareholders' interest therein. However, it is also recognized that many recipients of such stock distributions, which are called or otherwise characterized as dividends, consider them to be distributions of corporate earnings equivalent to the fair value of the additional shares received. In recognition of these circumstances, the American Institute of Certified Public Accountants has specified in Accounting Research Bulletin No. 43, Chapter 7, paragraph 10, that \the public interest account for the transaction by transferring from earned surplus to the category of permanent capitalization (represented by the capital stock and capital surplus accounts) an amount equal to the fair value of the additional shares issued. Unless this is done, the amount of earnings which the shareholder may believe to have been distributed will be left, except to the extent otherwise dictated by legal requirements, in earned surplus subject to possible further similar stock issuances or cash distributions. Both the New York and American Stock Exchanges require adherence to this policy by their listed companies.
50. Accounting standards require that, except for corrections of errors in financial
statements of a prior period and adjustments that result from realization of income tax benefits of preacquisition operating loss carry forwards of purchased subsidiaries, all items of profit and loss recognized during a period (including accruals of estimated losses from loss contingencies) be included in the determination of net income for that period. The standard permits limited restatements in interim periods of a company's current fiscal year.
51. a. Minority interests are the claims of shareholders of a majority owned subsidiary
whose total net assets are included in a consolidated balance sheet.
b. Consolidated financial statements often show minority interests as liabilities:
however, they are fundamentally different in nature from legally enforceable obligations. Minority shareholders do not have any legally enforceable rights for payments of any kind from the parent company. Therefore, the financial analyst can justifiably classify minority interest as equity funds in most cases.
3-26
Chapter 03 - Analyzing Financing Activities
EXERCISES Exercise 3-1 (20 minutes) a.
Long-term debt [46] 805.8 beg A 159.7 B 0.3 0.1 C 99.8 D 100.0 E 199.6 F G 24.3 H 250.3 1.9 I 772.6 end
A = Retirement of 13.99% Zero Coupon Notes.
B = Repayment of 9.125% Note.
C = Additional borrowing on 7.5% Note. D = Borrowing on 9% Note
E = Borrowing on Medium-Term Notes. F = Borrowing on 8.875% Debentures G = Repayment of Other Notes H = Reclassification of Note
I = Increase in capital lease obligation
b. Campbell Soup’s debt footnote indicates maturities of (in $millions) $227.7 in Year 12, $118.9 in Year 13, $17.8 in Year 14, $15.9 in Year 15, and $108.3 in Year 16. The remaining long-term debt matures in excess of 5 years. Given Campbell’s operating cash flow of $805.2 million, solvency does not appear to be a problem. Further, Campbell reports net income of $401.5, well in excess of its interest expense of $116.2 in Year 11, an interest coverage ratio of 6.7 [$667.4 + $116.2]/ $116.2). The company should also be able to meet its interest obligations.
Campbell reports total liabilities of $2,355.6 million ($1278+$772.6+$305) against stockholders’ equity of $1,793.4 million, a 1.3 times multiple. The amount of debt does not appear to be excessive. Nor does the company appear to be underutilizing its equity.
Given present debt levels that are not excessive and adequate cash flow, the company should be able to finance additional investments with debt if desired by management.
3-27
Chapter 03 - Analyzing Financing Activities
Exercise 3-2 (20 minutes)
a. The economic effects of a long-term capital lease on the lessee are similar to that of an equipment purchase using installment debt. Such a lease transfers substantially all of the benefits and risks incident to the ownership of property to the lessee, and obligates the lessee in a manner similar to that created when funds are borrowed. To enhance comparability between a firm that purchases an asset on a long-term basis and a firm that leases an asset under substantially equivalent terms, the lease should be capitalized.
b. A lessee should account for a capital lease at its inception as an asset and an obligation at an amount equal to the present value at the beginning of the lease term of minimum lease payments during the lease term, excluding any portion of the payments representing executory costs, together with any profit thereon. However, if the present value exceeds the fair value of the leased property at the inception of the lease, the amount recorded for the asset and obligation should be the fair value.
c. A lessee should allocate each minimum lease payment between a reduction of the obligation and interest expense so as to produce a constant periodic rate of interest on the remaining balance of the obligation.
d. Von should classify the first lease as a capital lease because the lease term is more than 75 percent of the estimated economic life of the machine. Von should classify the second lease as a capital lease because the lease contains a bargain purchase option.
Exercise 3-3 (15 minutes)
a. A lessee would account for a capital lease as an asset and an obligation at the inception of the lease. Rental payments during the year would be allocated between a reduction in the obligation and interest expense. The asset would be amortized in a manner consistent with the lessee's normal depreciation policy for owned assets, except that in some circumstances the period of amortization would be the lease term.
b. No asset or obligation would be recorded at the inception of the lease. Normally, rental on an operating lease would be charged to expense over the lease term as it becomes payable. If rental payments are not made on a straight-line basis, rental expense nevertheless would be recognized on a straight-line basis unless another systematic or rational basis is more representative of the time pattern in which use benefit is derived from the leased property, in which case that basis would be used.
3-28
Chapter 03 - Analyzing Financing Activities
Exercise 3-4 (18 minutes)
a. The gross investment in the lease is the same for both a sales-type lease and a direct-financing lease. The gross investment in the lease is the minimum lease payments (net of amounts, if any, included therein for executory costs such as maintenance, taxes, and insurance to be paid by the lessor, together with any profit thereon) plus the unguaranteed residual value accruing to the benefit of the lessor.
b. For both a sales-type lease and a direct-financing lease, the unearned interest income would be amortized to income over the lease term by use of the interest method to produce a constant periodic rate of return on the net investment in the lease. However, other methods of income recognition may be used if the results obtained are not materially different from the interest method.
c. In a sales-type lease, the excess of the sales price over the carrying amount of the leased equipment is considered manufacturer's or dealer's profit and would be included in income in the period when the lease transaction is recorded.
In a direct-financing lease, there is no manufacturer's or dealer's profit. The income on the lease transaction is composed solely of interest.
Exercise 3-5 (25 minutes)
A number of major companies have a meager debt ratio. Still, even when a company shows little if any debt on its balance sheet, it can have considerable long-term liabilities. This situation can reflect one or more of several factors such as the following:
Lease commitments, while detailed in notes, are not recorded in the balance sheets of many companies. This could be a critical problem for companies that have expanded by leasing rather than buying property. These lease commitments, while reflecting different attributes of pure debt, are just as surely long-term obligations.
Many companies have very large unfunded postretirement liabilities. These often are not recorded on the balance sheet, but are disclosed in the notes. At one time, a case could have been made that such obligations were not a problem, for as long as the business operated, payments would be made, and if it went bankrupt, the liability would end. Now, under most laws, the company has a real long-term obligation to employees.
3-29
Chapter 03 - Analyzing Financing Activities
Several companies guarantee the debt of another company. The most typical is a nonconsolidated lease subsidiary. Although disclosed in the notes, this debt, which is real and can be large, is not recorded on the parent's balance sheet.
3-30
