Financial Statement Analysis and Valuation Exam Questions Answered Correctly Latest Update 2024 (Already Passed)

Financial Statement Analysis and Valuation Exam Questions Answered Correctly Latest Update 2024 (Already Passed) Bally Corporation purchases an investment in Monte Carlo, Inc. at a purchase price of $7 million cash, representing 40% of the book value of Monte Carlo, Inc. During the year, Monte Carlo reports net income of $1,200,000 and pays $295,000 of cash dividends. At the end of the year, the market value of Bally's investment is $8.5 million. What is the year-end balance of the equity investment in Monte Carlo? - Answers The year-end balance of the investment account is computed as follows: Beginning balance $7,000,000 + Share of investee's net income ($1,200,000 × 40%) = 480,000 - Dividends received from Best Pictures ($295,000 × 40%) = (118,000) Ending balance $7,362,000 Valley View Corporation reported that short-term investments consisted of the following (in millions) on December 31, 2018: Amortized cost Fair value Short-term investments/ available-for-sale securities: $528.3 $528.4 Short-term investments/ trading securities: $62.2 $51.0 Total short-term investments: $590.5 $579.4 Which of the following is true? A) Valley View's 2013 balance sheet includes short-term investments of $590.5 million. B) Unrealized losses of $11.2 million on trading securities are included in 2018 income. C) There are no net unrealized gains on available-for-sale securities. D) Accumulated other comprehensive income included no unrealized gains or losses. - Answers (B) Unrealized gains and losses for trading securities are included in current-year income. Answer Ais not correct because the investments are recorded at fair value of $579.4 million on the balance sheet. Answer C and D are not correct since a net unrealized gain of 0.1 million on available-for-sale securities is included in accumulated other comprehensive income. Selected 2015 balance sheet and income statement information for The Gap, Inc. (in millions) follows: Year-end accounts payable: $ 1,242 Average accounts payable: $1,193 Sales: $16,148 Cost of goods sold: $9,855 Accounts payable days outstanding (also called days purchases in accounts payable for our term project using the Campbell Soup Company handout) for 2015 is: - Answers APDO = Accounts payable / average daily COGS = $1,242 / [$9,855 / 365 days] = 46.0 days A Contingent Liability must have the following criteria before the loss and liability must be recorded in the financial statements: - Answers The obligation will probably require payment at some point in the future and the obligation is estimable. Watson Electric Corp. sells $200,000 of bonds to private investors. The bonds have a 9% coupon rate and interest is paid semiannually. The bonds were sold to yield 10%. What periodic (semi-annual) interest payment does Watson make? - Answers Coupon rates are used to compute the dollar amount in interest payments paid to the bondholder semiannually. Watson pays $200,000 × 9% × ½ year = $9,000. Which one of the following is not correct? A) For debt issued at par: interest expense reported on the income statement equals the cash paid for interest. B) For bond repurchases: Gain (loss) on bond repurchase = Cash paid to repurchase minus Net book value of bonds. C) For debt issued at a discount: interest expense reported on the income statement equals cash interest payment. D) For debt issued at a premium, interest expense reported on the income statement equals cash interest payment less amortization of the premium. - Answers (C) For debt issued at a discount, interest expense reported on the income statement is cash interest paid plus amortization of the discount. Credit analysis concerns which of the following? A) The price of a company's stock B) The ability of a company to consistently pay dividends C) The probability a company will make timely payments on its debt D) An assessment of a company's credit-granting policies - Answers (C) The probability a company will make timely payments, that is, the potential risk of default. Bond investors are primarily concerned with a company's ability to make interest and principal payments per the bond agreement. Which of the following business factors does not play a role in determining a company's credit rating? A) Industry characteristics B) Capital structure C) Management