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Balance sheet format, terminology, and accounting methods. Exhibit 4.4 presents the balance sheet of Paul Loren...

Balance sheet format, terminology, and accounting methods. Exhibit 4.4 presents the balance
sheet of Paul Loren Company for Years 10 and 9. This balance sheet uses the terminology

Paul Loren Company
Balance Sheets
For Years 10 and 9
(amounts in millions of US$) (Problem 32)
Year 10 Year 9
ASSETS
Current Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 563.1 $ 481.2
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 584.1 338.7
Accounts receivable, net of allowances of $206.1 and $190.9 million . . . 381.9 474.9
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504.0 525.1
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.0 101.8
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139.7 135.0
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,275.8 2,056.7
Noncurrent investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75.5 29.7
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 697.2 651.6
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.9 102.8
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 986.6 966.4
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363.2 348.9
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148.7 200.4
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,648.9 $4,356.5
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 149.8 $ 165.9
Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.8 35.9
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 559.7 472.3
Total Current Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 747.3 674.1
Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 747.3 674.1
Deferred Tax Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282.1 406.4
Other Noncurrent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126.0 154.8
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,902.7 1,909.4
STOCKHOLDERS’ EQUITY:
Class A common stock, par value $0.01 per share; 75.7 million and
72.3 million shares issued; 56.1 million and 55.9 million shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 0.7
Class B common stock, par value $0.01 per share; 42.1 million and
43.3 million shares issued and outstanding . . . . . . . . . . . . . . . . . . . 0.4 0.4
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,243.8 1,108.4
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,544.9 2,177.5
Treasury stock, Class A, at cost (19.6 million and 16.4 million shares) . . . . (1,197.7) (966.7)
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . 154.0 126.8
Total Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,746.2 2,447.1
Total Liabilities and Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . $ 4,648.9 $4,356.5

format, and accounting methods of U.S. GAAP, and Paul Loren reports results in millions
of U.S. dollars. (Adapted from the financial statements of Polo Ralph Lauren.)
In addition to the items reported in Paul Loren’s balance sheet, assume the following
hypothetical information is available to you:
■ In Year 10 Paul Loren revalued a building with an acquisition cost of $200 million
downward, to its current fair value of $182 million.
■ In Year 10 Paul Loren wrote up the value of inventory, with a carrying value of $135
million, to its fair value of $165 million.
■ Included in commitments and contingencies for Year 10 is a lawsuit filed against Paul
Loren for breach of contract. Paul Loren estimates the following range of outcomes
for this lawsuit: 70% chance of damages of $100 million, 20% chance of damages of
$500 million, and 10% chance of damages of $1 billion.
a. Prepare a balance sheet for Paul Loren for Year 10, following the format, terminology,
and accounting methods required by U.S. GAAP. Ignore any income tax effects of any
revisions to reported amounts.
b. How, if at all, would your answer to part a differ if Paul Loren used IFRS?

Solutions

Expert Solution

1 Balance Sheet for Paul Loren for the Year 10 as per US GAAP
Amount(million of US $)
Assets
a Current Assets
Cash & Cash Equivalents 563.1
Accounts Receivable 381.9
Inventories 474
Short Term Investments 584.1
Deferred Tax Assets 103
Prepaid expenses & Others 139.7
Total Current Assets 2245.8
b Long Term Assets
Property & Equipment 715.2
Intangible Assets 363.2
Good Will 986.6
Non Current Investments 75.5
Deferred ta Asset 101.9
Other Asset 148.7
Total Long Term Assets 2391.1
Total Assets(a+b) 4636.9
Liabilities
c Current Liabilities
Accounts Payable 149.8
Income Tax Payable 37.8
Accrued Expenses & Others 559.7
Total Current Liabilities 747.3
d Long Term Liabilities
Long Term Debt 747.3
Deferred Tax Liabilities 282.1
Other Non Current Liabilities 126
Total Long Term Liabilities 1155.4
e Stock Holders Equity
Retained Earnings 2544.9
Common Stocks
Class A 0.8
ClassB 0.4
Treasury Stock -1197.7
Additional Paid up capital 1243.8
Accumulated Other Comprehensive Income 142
Total Stock Holders Equity 2734.2
Total Liabilities and Equity(c+d+e) 4636.9
Continget liabilities
estimated damages of Lawsuit agaist paul lauren $1600 million
Contingent liabilities are the bellow balance sheet items.
Note: Assets in the balance sheet are need to be presented in Book Value instead of market value.
Value of Building was revalued & Inventory is over valued from their original costs therefore unrealised gain/losses recognised by the Paul Loren.
we need to adjust those unrealised gain /losses in Accumulated other comprensive income.
2 Balance Sheet for Paul Loren for the Year 10 as per IFRS
Liabilities
Stock Holders Equity
Retained Earnings 2544.9
Common Stocks
Class A 0.8
ClassB 0.4
Treasury Stock -1197.7
Additional Paid up capital 1243.8
Accumulated Other Comprehensive Income 154
Total Stock Holders Equity 2746.2
Financial Liabilities
Long Term Debt 747.3
Deferred Tax Liabilities 282.1
Other Non Current Liabilities 126
Total Non Current Liabilities 1155.4
Current Liabilities 2310.8
Accounts Payable 149.8
Income Tax Payable 37.8
Accrued Expenses & Others 559.7
Total Current Liabilities 747.3
Total Liabilities 4648.9
Assets
Long Term Assets
Property & Equipment 697.2
Intangible Assets 363.2
Good Will 986.6
Non Current Investments 75.5
Deferred ta Asset 101.9
Other Asset 148.7
Total Long Term Assets 2373.1
Current Assets
Cash & Cash Equivalents 563.1
Accounts Receivable 381.9
Inventories 504
Short Term Investments 584.1
Deferred Tax Assets 103
Prepaid expenses & Others 139.7
Total Current Assets 2275.8
Total Assets 4648.9
Continget liabilities
estimated damages of Lawsuit agaist paul lauren $1600 million
Contingent liabilities are the bellow balance sheet items.
Note: In IFRS we need to recognise assets and liabilities at fair value

ekkarill92 answered 2 years ago
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