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NEW QUESTION: 1
Drag and drop the AAA functions from the left onto the correct AAA services on the right
Answer:
Explanation:
NEW QUESTION: 2
Tobin Yoakam, CFA, is analyzing the financial performance of Konker Industries, a U.S. company which is publicly traded under the ticker KONK. Yoakam is particularly concerned about the quality of Konker's financial statements and its choices of accounting methodologies.
Below is a summary of Konker's financial statements prepared by Yoakam.
Konker has an operating lease for several of its large machining tools. The lease term expires in five years, and the annual lease payments are $2 million. The applicable interest rate on the operating lease is 9%.
Yoakam believes that the operating lease should be capitalized and treated as a finance lease. For purposes of adjusting the financial statements, Yoakam believes that the machining tools should be depreciated using straight-line depreciation with a salvage value of $3 million.
At the beginning of 20X8, Konker formed a qualified special purposes entity (QSPE) and sold a portion of its accounts receivables to the QSPE. The total amount of accounts receivables sold to the QSPE was
$13.5 million. Yoakam has noted in his research that the Financial Accounting Standards Board (FASB) is considering the elimination of qualified special purposes entities.
Konker has three major operating divisions: Konker Industrial, Konker Defense, and Konker Capital.
Yoakam has computed the EBIT margin for each division over the last three years as well as the ratio of the percentage of total capital expenditures to the percentage of total assets for each division.
Since Yoakam is concerned about the quality of Konker's earnings, he decides to analyze the accrual ratios using the balance sheet approach. The table below contains the last three years of accrual ratios for Konker and the industry average.
An analyst is considering the effects of income reported under the equity method on certain financial ratios.
For a firm that reports equity income as non-operating income (not included in EBIT), removing equity income from the financial statements would most likely result in:
A. an increase in the asset turnover ratio.
B. a decrease in the interest coverage ratio.
C. an increase in the tax burden term in the extended Du Pont decomposition of ROE.
Answer: A
Explanation:
Explanation/Reference:
Explanation:
Removing the effects of the income reported under the equity method involves removing the income and the equity asset reported on the balance sheet. The decrease in total assets will increase the asset turnover ratio. The tax burden term is net income divided by earnings before tax so that the decrease in net income from removing the equity income will decrease the term (an apparently greater reduction in ROE due to taxes). Neither interest expense nor operating earnings (EBIT) are affected by the appropriate adjustments, so the interest coverage ratio is unaffected. (Study Session 7, LOS 26.b)
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Answer: C
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D. It ensures compliance with regulations.
Answer: D
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