BUSI407Binder

BUSI407Binder - Balance Sheet: Assets Marketable...

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Balance Sheet: Assets Marketable securities: o A company’s investment in the stock of another company Current assets: Trade securities Held to maturity Securities available for sale o We are interested in the buying price o Maybe interested in current market value Marked-to-market: Also shows up as gain or loss on I/S If marked-to-market: Lots of volatility in financial statements (gains/ losses) o Less volatility equals higher P/E ratio o Held to maturity: Bonds Use original cost (amortized cost) No effect on I/S o Trading securities: Use market value Gains/ losses go to I/S Unrealized gains still recognized as gains/ losses in earnings (I/S) *Market value is same thing as fair value o Securities available for sale: Put gain or loss in “other comprehensive income” (in B/S, stockholder’s equity portion)
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Example exam question: “Given investments a co. is holding at end of year, book value and market value, what values go on B/S? I/S? o FASB 115 doesn’t apply to investments in consolidated subsidiaries or to investments under the equity method
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Balance Sheet: Assets A/R: o On B/S are Net Realizable Value A/R – Allowance for Doubtful Accounts Allowance for Doubtful Accounts: Look at what has historically happened Affects B/S and Bad Debt Expense on I/S Inventory accounting method: o FIFO: NI looks higher Worse off because of higher taxes o LIFO: NI looks lower Better cash flows from less taxes LIFO is recognized as better financially However, inventory will be weak because FIFO inventory will never leave/ get crappy Footnote needed for LIFO users o Average cost method o Replacement cost of inventory: FIFO value or, LIFO value minus “getting old inventory” decrease in value o LIFO during inflation: Highest CGS Lowest inventory valuation This reverses during times of deflation
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o FIFO during inflation: Opposite of LIFO Property, plant, and equipment (fixed assets): o Fixed, tangible, long-lived, capital assets o Depreciation: Straight line Accelerated Units of production o On B/S shown as book value: Original cost minus accumulated depreciation Books prefer straight line method Tax prefers accelerated method Tax incentives for co. stimulating economy Take tax savings and reinvest them o Fixed assets vs. current: For fixed, we can have different values for book and market values Tax benefits in US
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Balance Sheet: Assets Intangibles: o Specifically identifiable and purchased: Assets: Patents Trademarks Franchises Written off by assumed life o Not specifically identifiable and purchased: Assets: Goodwill: o Potential for excess earnings o Good synergies o Employee loyalty Written off only by impairment o Not specifically identifiable and developed internally: Expense: Goodwill: o No way to measure this to make asset
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This note was uploaded on 02/27/2012 for the course BUSI 407 taught by Professor Bowen during the Spring '11 term at UNC.

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BUSI407Binder - Balance Sheet: Assets Marketable...

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