Chapter 1, Introductory Cases Dublin Small Animal Clinic, Inc. 1 page; introductory
Chapter 3, Financial Reporting, U.S. GAAP
Download 123.35 Kb.
|
- Navigate this page:
- Operating lease rules Restatements
- Valuation allowance Bankruptcy
Chapter 3, Financial Reporting, U.S. GAAP13.Intel Corporation: Inventory Write-downs 9 pages; introductory to intermediateInventory write-downsFinancial disclosureAccounting estimatesIntel, like all other U.S. firms, values its inventory at the lower of cost or market. Intel’s inventory primarily consists of semiconductors that rapidly decline in value as newer products enter the market. Furthermore, inventory demand is difficult to estimate because demand for end products that use Intel semiconductors is highly volatile. As a result, it is difficult to determine whether Intel has excess inventory and difficult to estimate the current value of its inventory. This case discusses those issues and also includes inventory disclosures in Intel’s quarterly reports from quarter 1, 1996, through quarter 3, 2009. Although inventory valuation is an important component of Intel’s operating results, Intel provides only minimal inventory disclosures. Intel probably has inventory write-downs every quarter, but it apparently mentions inventory write-down only if the write-down is significant. During that 13-year period, Intel never disclosed the amount of a quarterly inventory write-down. Intel occasionally mentions that it sold previously written-down inventory at a higher than expected price, which led to increased quarterly profits. As with inventory write-downs, Intel never mentions by how much profits increase from the sale of written-down inventory. The case can be used to introduce the lower of cost or market rules and to evaluate the quality of Intel’s inventory disclosures. Best uses:Undergraduate intermediate accounting First-year MBA/Executive MBA financial accounting Financial reporting Financial statement analysis 14.Leasing Restatements in the Restaurant Industry: 2004-2005 11 pages; intermediateOperating lease rulesRestatementsMaterialityPrinciples versus rule based accounting standardsSEC and the PCAOBThis case discusses four detailed operating lease rules that many restaurant chains failed to follow. After the PCAOB released its first inspection reports in mid-2005, about 35 restaurant chains restated their financial statements for minor amounts because of detailed lease rules that had little effect on their income statements or balance sheets. One rule requires that lease costs for leases with escalation clauses must be spread equally over the lease term, even if the escalation only covers inflation. Another requires that the benefit from lease or rent “holidays” must be spread over the entire lease term, including the month of the lease holiday. A third rule requires that build-out allowances must be capitalized, which has virtually no effect on net income, but does add an amount to both assets and liabilities. A fourth rule requires that tenants spread the cost of leasehold improvements over the lease term or the life of the improvement. Some firms recorded costs too quickly because they failed to include a probable lease renewal period; other firms recorded costs too slowly because they included a lease renewal period that was not probable. This case is excellent for considering the difference between rules based U.S. GAAP and principles based IFRS, which includes none of these four rules. I use the case to consider how difficult it would be to implement these four rules. If a company has one or two high-value leases, it is trivial to implement the rules. However, consider a firm with several thousand low-value leases. Although a firm may prefer a standard lease, if a property owner has a desirable location, that property owner may demand a non-standard lease. As a result, it could be highly cost ineffective to implement these four accounting rules; someone may need to re-evaluate each lease annually. The case includes a letter from the SEC’s Chief Accountant to the AICPA in response to an AICPA letter asking if it was necessary for firms to restate their financial statements. The letter says absolutely nothing. Because of the potential criminal liability under Sarbanes-Oxley, most firms that had not complied with the lease rules restated their financial statements, even when the differences were immaterial.
Best uses:Undergraduate intermediate accounting First-year MBA/Executive MBA financial accounting Financial reporting Financial statement analysis Use with:Brief Excel Case: Leases (Chapter 8) 15.Bethlehem Steel Corporation: Deferred Taxes 11 pages; intermediateValuation allowanceBankruptcyCorporate disclosuresDeferred taxesBethlehem Steel, for many years the nation’s second largest steel company, was marginally profitable in 2000. In both 1999 and 2000, Bethlehem had about $1.3 billion of deferred tax assets on its balance sheet, reduced by a valuation allowance of $325-$340 million. In the second quarter 2001, Bethlehem wrote off its entire $984 million of deferred tax assets (valuation allowance equaled deferred tax assets, so the net deferred tax asset was zero). However, in a note to its second quarter 10-Q (July 2001), Bethlehem management stated that the write-off was needed because of technical accounting rules but management expected to be able to utilize the deferred tax assets in the future. In response, many analysts stated that they expected Bethlehem’s stock price to increase. Bethlehem’s stock price remained at about $10 per share following the write-off and then declined to about $5.00 per share over the following three months. In October 2001, three months after it reported the billion dollar write-off, Bethlehem filed for Chapter 11 bankruptcy (reorganization). The firm was unable to obtain financing and its assets were sold in liquidation. The case is an interesting introduction to deferred tax assets, the valuation allowance, corporate disclosures, and bankruptcy. The case includes a basic explanation of deferred tax accounting. Best uses:Undergraduate intermediate accounting First-year MBA/Executive MBA financial accounting Financial reporting Financial statement analysis Valuation
Directory: resource uploads -> downloads downloads -> Chapter 19 Chapter Outline downloads -> Chapter 1 Practice Quiz Introducing the Economic Way of Thinking downloads -> Bltc-8e Case Problem with Sample Answer Chapter 30: Partnerships 20. 5 Case Problem with Sample Answer downloads -> Cross-7e: Case Problem with Sample Answer downloads -> Atmospheric circulation downloads -> September 3, 2007 downloads -> August 30 2009 Website Update downloads -> Chapter 3 exercises downloads -> Review Sheet: Chapt. 1: The Moral Point of View Moral concerns are unavoidable in life. Ethics downloads -> Chapter 17 Chapter Outline Download 123.35 Kb. Share with your friends:
|