Case 2 Solution: Problem Identification: How should a company account for forfeited stock subscriptions? Moreover, do such payments constitute operating or other income? Keywords: Stock Subscription; operating income; additional paid-in capital; owners’ equity; net income; operating income. Conclusion: Per 505-10-25-2, capital transactions that incur no future corporate obligations should be excluded from calculating net or operating income. Thus, the forfeited cash should become part of additional paid-in capital about any
Case 13-1: Refer-a-Friend Program Runway Discount is an online retailer that sells discounted high-end fashion. The company decided to create the Refer-a-Friend Program where a current customer can refer a friend to the website. Once the new customer purchases merchandise, the existing customer will receive a $25 credit towards their next purchase. The $25 credit represents the fair value of the cost Runway would pay to earn a new customer from an unrelated third party or marketing firm. Runway Discount should record the $25 Referral Credit as a marketing expense.
What is its alternative minimum tax? Answer: $9,450 5. The Shepherd Corporation has $40,000 of taxable income, $200,000 of positive adjustments, and a $10,000 preference item. What is its alternative minimum taxable income? Answer: $235,000 6.
What does the $2.55 billion increase in Berkshire Hathaway’s market value represent? 2. Choice of valuation methods: What do you think PacifiCorp is worth on its own before its acquisition by Berkshire? Which valuation method should you use to value PacifiCorp and why? Show clearly the steps to arrive at the following estimates in Exhibit 10: Enterprise Value as Multiple of: Revenue EBIT EBITDA Net Income 6,252 8,775 9,023 7,596 6,584 9,289 9,076 7,553 MV Equity as Multiple of: EPS Book Value 4,277 5,904 4,308 5,678 Median Mean If you need to use a discount rate to discount cash flows then an appropriate discount rate estimate for PacifiCorp is approximately 9%.
It does not reflect the substance of the transaction, though, which is that PDL has rendered multiple deliverables in sale: both the initial sale, and the subsequent sale based on points value are being sold. Accordingly, PDL must consider an alternate approach to its loyalty point program: On a sale that involves issuance of points, some of the sale value is assigned to current sales, but the retail value of points to be redeemed in the future is recorded as
Problem 1 Refer to the information provided by the excerpts of Delta’s 2010 10-K attached. Assume Delta also uses the 5% as the residual value for its flight equipment and the average useful lives for its flight equipment are 26 years (mid-point between 21 and 30). Questions: a. What is the depreciation expense for every $100 of flight equipment used for a given year? Depreciation for a given year = (cost of flight equipment – residual value) /average useful live = (20,312.00 - 1015.60) /26 = 19296.4/26 =742.15 Depreciation for every $ 100 for a given year = 742.15*100/20312.5 = 3.65 b.
Amtrak must decide which strategy is most beneficial to the corporation. Discussion Should Amtrak resort to federal funding, it would eliminate opportunity of funding other capital projects that could not be so easily and cost-effectively financed as the locomotives themselves. It would therefore be most advantageous to secure those funds until time of greater need. In the event that Amtrak may decide to use the leveraging-lease method from BNYCF to finance Acela, it should be noted that the greatest benefit would be lower out-of-pocket costs when acquiring and maintaining the new locomotives and trains. The leverage-lease alternative will reflect a stated NPV of -$174 million.
"It all depends on the assumptions." To see just how good some of the new metrics are at valuing acquisitions, we asked both Stern Stewart and HOLT Value Associates LP to calculate a fair value for Snapple at the time of its acquisition by Quaker, using only data that was publicly available at that time. Stern Stewart declined, citing its former consulting relationship with Quaker, but HOLT agreed to take on the assignment using its CFROI (cash flow return on investment) methodology. First, some background. In valuing a company whose CFROI is higher than average, HOLT assumes those returns will gradually fade toward the market norm because of competitive pressures.
2. When would Runway record the $25 Referral Credit? What are the entries Runway would record when the $25 Referral Credit is earned by the Existing Customer? What are the entries Runway would record when the $25 Referral Credit is redeemed against a $100 purchase made by the Existing Customer? 3.
Some information may be reliable such as the historical cost of an asset 20 years ago, but obviously it won’t be relevant because there is more recent information from 20 years ago. Conversely, information, such as forecasts of future profits, may be relevant but cannot be measured with an acceptable degree of reliability to be included in general purpose financial reports. What are Accounting Standards? The AASB accounting standards are a set of rules that companies listed on the