Question

In: Accounting

7. HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS...

7.

HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP. The following facts apply:

  1. HW is defending against a lawsuit and believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates it will need to pay a range of damages that falls between $6,300,000 and $11,300,000, with each amount in that range equally likely.
  2. HW is defending against another lawsuit that is identical to item (a), but the relevant losses will only occur far into the future. The present values of the endpoints of the range are $4,300,000 and $9,300,000, with the timing of cash flow somewhat uncertain. HW considers these effects of the time value of money to be material.
  3. HW is defending against another lawsuit for which management believes HW has a slightly better than 50/50 chance of losing in court. If it loses the lawsuit, management estimates HW will need to pay a range of damages that falls between $4,300,000 and $10,300,000, with each amount in that range equally likely.
  4. HW has $11,300,000 of short-term debt that it intends to refinance on a long-term basis. Soon after the balance sheet date, but before issuance of the financial statements, HW obtained the financing necessary to refinance the debt.

   
Required:
1. For each item, indicate how treatment of the amount would differ between U.S. GAAP and IFRS.
2. Consider the total effect of items a–d. If HW’s goal is to show the lowest total liabilities, which set of standards, U.S. GAAP or IFRS, best helps it meet that goal?

Solutions

Expert Solution


Related Solutions

HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather...
HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP. The following facts apply: HW is defending against a lawsuit and believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates it will need to pay a range of damages that falls between $5,000,000 and $10,000,000, with each amount in that range equally likely. HW is defending against another lawsuit that is identical to item...
HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather...
HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP. The following facts apply: HW is defending against a lawsuit and believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates it will need to pay a range of damages that falls between $5,500,000 and $10,500,000, with each amount in that range equally likely. HW is defending against another lawsuit that is identical to item...
1. Parker is considering adopting IFRS for financial reporting. What are some of the key differences...
1. Parker is considering adopting IFRS for financial reporting. What are some of the key differences between IFRS and US GAAP that might impact Parker? What are some of the advantages and disadvantages that might accrue to Parker if it adopted IFRS for all of its operations?   2. Would adoption of IFRS require additional reporting requirements for the SEC? What role does the IASB, FASB, PCAOB and SEC play in promoting high-quality accounting information for US and global businesses? Does...
What Will The International Financial Reporting Standards (IFRS) Mean to Businesses and Investors? What are the...
What Will The International Financial Reporting Standards (IFRS) Mean to Businesses and Investors? What are the new standards and how have they evolved?
What are the main liabilities of Bank of Canada? Explain. Under what circumstances will these liabilities...
What are the main liabilities of Bank of Canada? Explain. Under what circumstances will these liabilities change? Provide examples.
HW 7 16. Madison would like to form a portfolio between Microsoft (Ticker: MSFT) and a...
HW 7 16. Madison would like to form a portfolio between Microsoft (Ticker: MSFT) and a bond index fund. The following table shows the performance of the two assets in each state of the economy. Prob. MSFT(%) Bond(%) Recession           0.1     -40       12 Normal               0.7     20        6 Boom                 0.2     50        -2 Suppose the standard deviation of Microsoft is 23.24% and the standard deviation of the bond fund is 3.92%. Madison will form a portfolio which invests 40% into Microsoft and 60%...
8.4 Chapter 8 HW - Problem Mastery 7) LUVFINANCE, Inc. is estimating its WACC. It is...
8.4 Chapter 8 HW - Problem Mastery 7) LUVFINANCE, Inc. is estimating its WACC. It is operating at its optimal capital structure. Its outstanding bonds have a 12 percent coupon, paid semiannually, a current maturity of 17 years, and sell for $1,162.   It has 100,000 bonds outstanding. The firm can issue new 20-year maturity semiannual bonds at par but will incur flotation costs of $50 per bond (Hint: the coupon rate on the new bonds = the YTM on existing...
Explain the reason why, under the former accounting standard, reporting entities’ ‘off balance sheet lease liabilities...
Explain the reason why, under the former accounting standard, reporting entities’ ‘off balance sheet lease liabilities were up to 66 times greater than the debt reported on their balance sheet
7. What effect would each of the following have on net income - increase or decrease?...
7. What effect would each of the following have on net income - increase or decrease? a) Decreasing estimated salvage value of equipment b) Writing off obsolete inventory c) Underestimating warranty claims d) Accruing a contingent liability for an ongoing lawsuit 1 8. Which earnings per share figures must be disclosed on the face of an income statement of a public company? 1 9. How would each of the following be reported in the income statement or balance sheet (whichever...
Answer the next 7 questions. In an open economy, what would be the long-run effect on...
Answer the next 7 questions. In an open economy, what would be the long-run effect on a country’s exchange rate (e), i.e., the strength of its currency, of a simultaneous reduction in personal taxes (T↓) and reduction in the money supply (M↓) designed to leave real GDP the same (Y = Yf)? Up, Down, or Same? In an open economy, what would be the long-run effect on net exports (NX) of a simultaneous reduction in personal taxes (T↓) and reduction...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT