Ch 3 Exercises Flashcards
You have just been assigned to provide client services to the following entity. Identify three resources you could consult in order to better understand the company’s business model and industry.
Pfizer
1) Form 10-K
2) Google “overview of the healthcare industry”
3) Access a database such as IBIS or Hoovers
You have just been assigned to provide client services to the following entity. Identify three resources you could consult in order to better understand the company’s business model and industry.
Southwest Airlines
1) Related press releases
2) AICPA Audit and Accounting Guide for Airlines
3) Form 10-K
You have just been assigned to provide client services to the following entity. Identify three resources you could consult in order to better understand the company’s business model and industry.
Caesars Entertainment
1) The Codification
2) Peer benchmarks
3) Access a database such as Mergent
Identify two competitors of Pfizer.
1) Eli Lilly
2) Novartis
What is one interesting fact about the healthcare industry?
Insurance is one of the hallmarks of health care, and it is the thing that most distinguishes health care from other industries.
Look up the AICPA Audit and Accounting Guide for Airlines, then look for the table of contents to this guide. Imagine that you’ve just been assigned to the audit of an airline. Name two chapters from this book that you might read (or skim) in advance of the engagement, and explain why you chose those these.
Chapter 9: explains audit and professional services research.
Chapter 4: explains how to create effective documentation.
Identify at least one researchable question for the issue:
A cable network has just entered into an arrangement granting it the right to show reruns of a hit TV series. In exchange for this right, the network must pay the TV show’s creators a fee each time the show airs.
Has the cable company entered into an agreement similar to this one before? If so, how was it handled?
How frequently will the show be aired?
Identify at least one researchable question for the issue:
An online restaurant booking site sells a $100 meal voucher, good for $100 toward a meal at Randall’s steakhouse, to a customer for $60. When the customer presents the voucher to Randall’s Steakhouse, the restaurant booking site must remit $50 to Randall’s, retaining $10
How is Randall’s Steakhouse going to recognize revenue?
When will Randall’s Steakhouse recognize revenue?
Is there a contract between the online booking site and Randall’s Steakhouse?
Identify at least one researchable question for the issue:
A company’s auditor is questioning the appropriateness of the company’s discount rate assumption, which it uses to measure its defined benefit pension obligation.
What are the original terms of the defined pension obligation?
How is the discount rate assumption properly applied to a defined pension obligation?
Identify at least one researchable question for the issue:
Coal Inc. has paid $10 million to a waste disposal company to clean a site originally contaminated by Coal, Inc. through its operations and to assume its environmental liability (currently recorded as an $10 million liability on Coal’s financial statements). State regulators have signed off on the liability transfer and now look to the waste disposal company as the responsible party for the cleanup.
Should the liability be removed from Coal, Inc.’s books?
Are there any required disclosures that need to be included in the financial statement footnotes?
Identify at least two researchable questions for the issue:
Automotive Inc. has announced the sale of its Truck Division’s three plants, along with planned layoffs of the Truck Division’s employees. Automotive Inc. is hoping to segregate the results of the Truck Division’s operations in its financial statements.
Why is Automotive, Inc. selling Truck Divison’s three plants?
How will the sale of the three plants impact the financial statements of Automotive, Inc.?
How will laying off a large number of employees affect the business?
Identify at least one researchable question for the issue:
Your company is planning to issue equity securities with attached call options, where the company can repurchase the securities at a specified price if future events occur.
What are the specifics of this arrangement?
At what price can the shares be repurchased?
Will the issued securities be held short or long term?
For the following researchable question, identify two additional questions that might arise as the researcher digs deeper into the research topic.
Assume that a company has just sold a portfolio of mortgage loans in exchange for cash and certain retained interests in the loans receivables. The initial question: can the company record the transfer as a sale?
What are the terms of the final sale agreement?
How should the company value the retained interest in the loan’s receivable, at fair value or carrying value?
What disclosures are required?
