Acc304 Intermediate Accounting: Final Exam (6 Essays) - Version 1

Acc304 Intermediate Accounting (Spiceland) - Version 1
Final Exam – 6 Essays

1. (TCO 1/3) Kellogg Company and its subsidiaries are engaged in the manufacture and marketing of ready-to-eat cereal and convenience foods. In its annual report to shareholders, Kellogg disclosed the following: DISPOSITIONS Last year, the Company sold certain assets and liabilities of the Lender's Bagels business to Aurora Foods Inc. for $275 million in cash. As a result of this transaction, the Company recorded a pretax charge of $178.9 million ($119.3 million after tax or $.29 per share). This charge included approximately $57 million for disposal of other assets associated with the Lender's business, which were not purchased byAurora. Disposal of these other assets was completed during the current year. The original reserve of $57 million exceeded actual losses from asset sales and related disposal costs by approximately $9 million. This amount was recorded as a credit to other income (expense), net during the current year. Explain how the Kellogg transactions described could be interpreted as an example of earnings management. (Points: 25)

2. (TCO 4) Notsofast Inc. acquired land for $500,000 on 7/1/08. It erroneously recorded the full amount as an expense. Briefly Explain what Notsofast must do when it discovers the error in 2009. (Points: 25)

3. (TCO 5) Many corporations own more than 50% of the voting stock in other corporations. Sometimes these affiliated companies operate within the same industry, and many times the companies are in unrelated industries. What is the significance of owning more than 50% of the voting common stock of another company? (Points: 25)

4. (TCO 6) Texon Oil is being sued for price fixing and environmental damage. The litigation started this year and is expected to last five years. There is no doubt that Texon is guilty but the settlement cost will be between $3 billion and $22 billion. Briefly explain how Texon would address this in its current year financial statements. (Points: 25)

5. (TCO 7) In its 2009 annual report to shareholders, Bare Sturns Group Inc. disclosed the following:
On October 28, 2009, the Company issued $475,000,000 aggregate principal amount of 9-1/4% Senior Notes Due 2014 ("Senior Notes") and $618,670,000 aggregate principal amount at maturity of 10-1/4% Senior Discount Notes Due 2014 ("Senior Discount Notes" and collectively the "Notes") in a transaction not registered under the Securities Act in reliance upon an exemption from the registration requirements of the Securities Act. Gross proceeds from the offering amounted to $850,000,000. The discount on the Senior Discount Notes is being accreted under the effective interest method. Explain the last sentence of the disclosure to clarify what accounting was necessary and why. (Points: 25)

6. (TCO 8) Discuss the economic advantages of leasing. (Points: 25)
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