One accounting related issue in acquisitions is the allocation of between various classes of intangible assets and amortization schedules. Lengthy amortization periods in within a high tech world are not acceptable. The controller can play a meaningful role; ...
The answer to this problem explains ethics in acquisition accounting. The references related to the answer are also included.
NOPAT / Operating expense / NI and Cash Flow
Attached are 6 questions that I am struggling to answer. I am looking for quick bullet point answers and explanations on NOPAT / Operating Expense / Cash Flows and analyst issues.
Please use the HP 10k for data.
1. Using the HP income statement on P85,
a. Compute NOPAT for 2004.
b. How would you justify treating acquisition-related charges as an operating expense?
2. During September, each of the following events occurred at Bob's Packaging Company. For each event, identify the effect it had on net income and on cash flow.
Event Effect on September's Net Income Effect on September's Cash Flow
Purchased $20,000 of merchandise inventory. Payment will be made on October 1.
Sold $12,000 of merchandise that cost $7,000, 25% for cash and the balance on account.
Collected $5,000 of the amount owed to the company from the sale
Received advance payment of $2,400 for work which will be started in October.
Dividends of $9,000 were paid.
3. HP reports restructuring charges in a separate line in its income statement.
a. What is the accounting reason for including this as a separate line item rather than commingling it with another general account, such as G&A expense?
b. Briefly, identify two primary issues relating to the treatment of restructuring charges from an analysis standpoint?
4. HP reports an account titled "accrued restructuring" in its balance sheet.
a. Briefly discuss the effects on the reported profit when this account increases and decreases.
b. Briefly discuss how an account such as this can be used to shift profit from one period to another.
5. HP reports includes a line in its balance sheet titled, "commitments and contingencies" with no dollar amount. What is the accounting reason why no dollar amount is reported for this line item?
6. Referring to HP's balance sheet (p 86),
a. Compute HP's net operating assets (NOA) and net financial obligations (NFO) for 2004. (Hint: the computation is simpler if you utilize NOA = NFO + SE ).
b. Using your answer to part 6a, together with your answer to problem 1a, perform a level 1 disaggregation of return on equity (ROE) for 2004 into its operating and nonoperating components using year-end balances rather than averages. (Hint: the computation is simpler if you utilize NFE = NOPAT - net income).