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ch3sol - CHAPTER 3 UNDERSTANDING FINANCIAL STATEMENTS...

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CHAPTER 3 UNDERSTANDING FINANCIAL STATEMENTS Problem 1 a. Marketable securities are valued at book or market, whichever is lower. Hence marketable securities are probably assessed at close to market value. Near-cash must also be close to market value. Cash, of course, by definition is at market value. b. Fixed Assets are valued at historical cost. Hence they were probably purchased for the gross book value of fixed assets, i.e. 5486+199 = $5685. From the value of $2016 for accumulated depreciation, we see that about 36.75% of the value of the depreciable fixed assets has been written off in depreciation. Hence, if we can assume that Coca-Cola uses straight-line depreciation, about two-fifths of the life of the estimated life of these assets is over. If we know the average life of assets in this industry, we can use that to estimate the age of these assets. c. There are several reasons why current assets are more prominent in Coca-Cola’s balance sheet than fixed assets. One, there is a large amount of cash and near-cash: this might be due to impending expansion, perhaps investment in bottling operations. Two, the Other Assets item includes investment in other Coca-Cola companies, which are primarily manufacturing operations, such as bottlers. Hence, if the fixed assets and current assets parts of these investments were included, the ratio of fixed to current assets would probably be larger. d. Even though the companies were sold off, Coca-Cola presumably still has some ownership stake in these companies. To the extent that Coca-Cola does not have a majority stake in these companies, they would not be consolidated into Coca-Cola’s balance sheet.
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