International Reporting Case
Sepracor, Inc., a U.S. drug company, reported the following information. The company prepares its financial statements in accordance with U.S. GAAP.
2007 (,000)
Current Liabilities $ 554,114
Convertible Subordinated Debt 648,020
Total Liabilities 1,228,313
Stockholders’ Equity 176,413
Net Income 58,333
Analysts attempting to compare Sepracor to international drug companies may face a challenge due to differences in accounting for convertible debt under iGAAP. Under IAS 32, Financial Instruments, convertible bonds, at issuance, must be classified separately into their debt and equity components based on estimated fair value.
INSTRUCTIONS:
(a) Compute the following rations for Sepracor, Inc. (assume that year-end balances approximate annual averages.)
(1) Return on assets.
(2) Return on stockholders’ equity
(3) Debt to asset ratio
(b) Briefly discuss the operating performance and financial position of Sepracor. Industry averages for these ratios in 2007were: ROA 3.5%; return on equity 16%; and debt to assets 75%. Based on this analysis would you make an investment in the company's 5% convertible bonds? Explain.
(c) Assume you want to compare Sepracor to an international company, like Bayer (which prepares its financial statements in accordance with iGAAP). Assuming that the fair value of the equity components of Sepracor's convertible bonds is $150,000, how would you adjust the analysis above to make valid comparisons between Sepracor and Bayer
Click here for the solution: International Reporting Case: Sepracor, Inc., a U.S. drug company, reported the following information
Showing posts with label international. Show all posts
Showing posts with label international. Show all posts
Tuesday, April 12, 2016
Wednesday, October 14, 2015
Airport Connection provides shuttle service between four hotels near a medical center and an international airport
ACC 560 Week 4 Assignment
E5-11 Airport Connection provides shuttle service between four hotels near a medical center and an international airport. Airport Connection uses two 10 passenger vans to offer 12 round trips per day. A recent month's activity in the form of a cost-volume-profit income statement is shown below.
Fare revenues (1,440 fares) $36,000
Variable costs
Fuel $5,040
Tolls and Parking 3,100
Maintenance 500 8,640
Contribution margin 27,360
Fixed costs
Salaries 13,000
Depreciation 1,300
Insurance 1,128 15,428
Net income $11,932
Instructions
(a) Identify the above costs as variable, fixed, or mixed.
(b) Calculate the expected costs when production is 5,000 units.
Click here for the solution: Airport Connection provides shuttle service between four hotels near a medical center and an international airport
E5-11 Airport Connection provides shuttle service between four hotels near a medical center and an international airport. Airport Connection uses two 10 passenger vans to offer 12 round trips per day. A recent month's activity in the form of a cost-volume-profit income statement is shown below.
Fare revenues (1,440 fares) $36,000
Variable costs
Fuel $5,040
Tolls and Parking 3,100
Maintenance 500 8,640
Contribution margin 27,360
Fixed costs
Salaries 13,000
Depreciation 1,300
Insurance 1,128 15,428
Net income $11,932
Instructions
(a) Identify the above costs as variable, fixed, or mixed.
(b) Calculate the expected costs when production is 5,000 units.
Click here for the solution: Airport Connection provides shuttle service between four hotels near a medical center and an international airport
Sunday, September 13, 2015
The following is an auditor's report prepared in accordance with International Standards on Auditing (ISAs)
Auditing P 3-33 The following is an auditor's report prepared in
accordance with International Standards on Auditing (ISAs) issued by the
International Auditing and Assurance Standards Board (IAASB):
Independent Auditor's Report
To the Shareholders of Les Meridian, Inc.
We have audited the accompanying financial statements of Les Meridian, Inc,. which comprise the balance sheet as of December 31, 2009, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary significant accounting policies and other explanatory notes.
AND SO ON
Required:
a. For each of the seven distinct parts of the standard unqualified report prepared in accordance with generally accepted auditing standards in the United States, describe whether key elements of each of those seven parts are present in hte audit report based on International Standards on Auditing for Les Meridian's financial statements.
b. Describe elements in the audit report based on International Standards on Auditing that are more extensive than an audit report based on US auditing standards.
Click here for the solution: The following is an auditor's report prepared in accordance with International Standards on Auditing (ISAs)
Independent Auditor's Report
To the Shareholders of Les Meridian, Inc.
We have audited the accompanying financial statements of Les Meridian, Inc,. which comprise the balance sheet as of December 31, 2009, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary significant accounting policies and other explanatory notes.
AND SO ON
Required:
a. For each of the seven distinct parts of the standard unqualified report prepared in accordance with generally accepted auditing standards in the United States, describe whether key elements of each of those seven parts are present in hte audit report based on International Standards on Auditing for Les Meridian's financial statements.
b. Describe elements in the audit report based on International Standards on Auditing that are more extensive than an audit report based on US auditing standards.
Click here for the solution: The following is an auditor's report prepared in accordance with International Standards on Auditing (ISAs)
Tuesday, July 14, 2015
Madden International is a large ($7 billion sales), successful international pharmaceuticals firm operating in 23 countries with 15 autonomous subsidiaries
Madden International is a large ($7 billion sales), successful international pharmaceuticals firm operating in 23 countries with 15 autonomous subsidiaries. The corporate office consists of five vice presidents who oversee the operations of the subsidiaries. These five vice presidents report to two executive vice presidents, who in turn report to the president of the firm.
The 15 subsidiaries specialize by pharmaceutical type and in some cases by country. The pace of innovation in this industry is very fast. In addition, each country has its own elaborate regulatory environment that controls new drug introduction, pricing, and distribution. Each market has its own peculiarities concerning hospital drug purchases. It is an understatement to say that Madden International operates in a very complex world that changes daily.
The corporate office requires each subsidiary to maintain an elaborate, detailed budget and control system. The following points summarize the budget and control system in each subsidiary:
• One-, three-, and five-year budgets are prepared each year.
• The vice president overseeing the subsidiary looks for three- and five-year budgets that stretch the subsidiary’s capabilities. That is, subsidiaries are pushed to devise programs that increase value.
• These budgets are developed and approved first at the subsidiary level, then by corporate headquarters.
• Every three months the subsidiaries must reconcile actual performance to budget and write detailed reports to the corporate office explaining variances and corrective actions to be taken.
• The corporate vice president assigned to the subsidiary makes quarterly visits for three days of meetings that involve extensive reviews of the budgets and operating results. These meetings involve all the senior managers in the subsidiary.
• Subsidiary senior managers are not compensated or rewarded for meeting budget targets. Rather, they are evaluated on their ability to develop new markets, solve short-run problems, add value to their organization and to Madden International, and manage and motivate their subordinates. These performance evaluation criteria are quite subjective. But the corporate vice presidents have a great deal of in-depth personal contact with each of the senior people in their subsidiaries and are able to arrive at suitable performance evaluations.
• Preparing for these meetings with the corporate vice president and developing the budgets requires the involvement of all the senior managers in the subsidiary. One manager remarked, “I’d hate to see how much more money we could be making if we didn’t have to spend so much time in budget and financial review meetings.”
It turns out that Madden International is not unique in the amount of senior management time spent on budgeting and financial reviews. A survey of large, publicly traded U.S. firms supports the Madden system. Researchers found that innovative firms in complex environments characterized by high uncertainty and change used much more elaborate formal financial control (budgeting) systems than did firms in more stable, mature industries. Innovative firms seem to employ more financial controls than less-innovative firms.
Required:
a. List the strengths and weaknesses of the budgeting and control system at Madden International.
b. Why might you expect firms like Madden International to rely so heavily on formal financial control systems?
Click here for the solution: Madden International is a large ($7 billion sales), successful international pharmaceuticals firm operating in 23 countries with 15 autonomous subsidiaries
The 15 subsidiaries specialize by pharmaceutical type and in some cases by country. The pace of innovation in this industry is very fast. In addition, each country has its own elaborate regulatory environment that controls new drug introduction, pricing, and distribution. Each market has its own peculiarities concerning hospital drug purchases. It is an understatement to say that Madden International operates in a very complex world that changes daily.
The corporate office requires each subsidiary to maintain an elaborate, detailed budget and control system. The following points summarize the budget and control system in each subsidiary:
• One-, three-, and five-year budgets are prepared each year.
• The vice president overseeing the subsidiary looks for three- and five-year budgets that stretch the subsidiary’s capabilities. That is, subsidiaries are pushed to devise programs that increase value.
• These budgets are developed and approved first at the subsidiary level, then by corporate headquarters.
• Every three months the subsidiaries must reconcile actual performance to budget and write detailed reports to the corporate office explaining variances and corrective actions to be taken.
• The corporate vice president assigned to the subsidiary makes quarterly visits for three days of meetings that involve extensive reviews of the budgets and operating results. These meetings involve all the senior managers in the subsidiary.
• Subsidiary senior managers are not compensated or rewarded for meeting budget targets. Rather, they are evaluated on their ability to develop new markets, solve short-run problems, add value to their organization and to Madden International, and manage and motivate their subordinates. These performance evaluation criteria are quite subjective. But the corporate vice presidents have a great deal of in-depth personal contact with each of the senior people in their subsidiaries and are able to arrive at suitable performance evaluations.
• Preparing for these meetings with the corporate vice president and developing the budgets requires the involvement of all the senior managers in the subsidiary. One manager remarked, “I’d hate to see how much more money we could be making if we didn’t have to spend so much time in budget and financial review meetings.”
It turns out that Madden International is not unique in the amount of senior management time spent on budgeting and financial reviews. A survey of large, publicly traded U.S. firms supports the Madden system. Researchers found that innovative firms in complex environments characterized by high uncertainty and change used much more elaborate formal financial control (budgeting) systems than did firms in more stable, mature industries. Innovative firms seem to employ more financial controls than less-innovative firms.
Required:
a. List the strengths and weaknesses of the budgeting and control system at Madden International.
b. Why might you expect firms like Madden International to rely so heavily on formal financial control systems?
Click here for the solution: Madden International is a large ($7 billion sales), successful international pharmaceuticals firm operating in 23 countries with 15 autonomous subsidiaries
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