Chapter 12 1. a. The key long-lived assets are land, buildings, and improvements, machinery, equipment and special tools. The related expense accounts are depreciation expense and amortization. b. These assets are recorded at cost, net of accumulated depreciation and impairments. It capitalizes new assets when it expects to use the asset for more than one year. Routine maintenance and repair costs are expensed when incurred. Property and equipment are depreciated using straight-line method over the estimated useful life of the asset. Special tools are amortized over the expected product program using straight-line method. Property and equipment are depreciated primarily using the straight-line method over the estimated useful life of the asset. Useful lives range from 3 years to 36 years. The estimated useful lives generally are 14.5 years for machinery and equipment, 3 years for software (8 years for mainframe and client based software), 30 years for land improvements, and 36 years for buildings. Special tools generally are amortized over the expected life of a product program using a straight-line method. If the expected production volumes for major product programs associated with the tools decline significantly, we accelerate the amortization reflecting the rate of decline. c. Return on Asset measures how efficiently a firm utilizes its assets. Ford has higher ROA. It means that the company is able to efficiently generate earnings using its assets. Asset turnover measures how efficiently a company uses its total assets to generate revenues. Based on the table below, Ford has higher ROA. This indicates that Ford is more efficient than Toyota in its use assets or that it is operating in a capital- intensive environment. Ford Toyota Net Income 5,665 3,450 Total Assets 190,554 372,928 ROA 2.97% 0.93%
Transcript
Chapter 12
1. a. The key long-lived assets are land, buildings, and improvements, machinery, equipment and special tools. The related expense accounts are depreciation expense and amortization.
b. These assets are recorded at cost, net of accumulated depreciation and impairments. It capitalizes new assets when it expects to use the asset for more than one year. Routine maintenance and repair costs are expensed when incurred. Property and equipment are depreciated using straight-line method over the estimated useful life of the asset. Special tools are amortized over the expected product program using straight-line method.
Property and equipment are depreciated primarily using the straight-line method over the estimated useful life of the asset. Useful lives range from 3 years to 36 years. The estimated useful lives generally are 14.5 years for machinery and equipment, 3 years for software (8 years for mainframe and client based software), 30 years for land improvements, and 36 years for buildings. Special tools generally are amortized over the expected life of a product program using a straight-line method. If the expected production volumes for major product programs associated with the tools decline significantly, we accelerate the amortization reflecting the rate of decline.
c. Return on Asset measures how efficiently a firm utilizes its assets. Ford has higher ROA. It means that the company is able to efficiently generate earnings using its assets.
Asset turnover measures how efficiently a company uses its total assets to generate revenues. Based on the table below, Ford has higher ROA. This indicates that Ford is more efficient than Toyota in its use assets or that it is operating in a capital-intensive environment.
Ford ToyotaNet Income 5,665 3,450Total Assets 190,554 372,928ROA 2.97% 0.93%
Net Revenue 134,252 226,106Average Total Assets 190,554 372,928Asset Turn-over 70.45% 60.63%
2. a. Consumer receivables involved in TDRs are specifically assessed for impairment. A specific allowance is estimated based on the present value of the expected future cash flows of the receivable discounted at the loan's original effective interest rate or the fair value of any collateral adjusted for estimated costs to sell.
Non-Consumer. Estimate the allowance for credit losses for non-consumer receivables based on historical LTR ratios, expected future cash flows, and the fair value of collateral.
Specific Allowance for Impaired Receivables. The dealer financing is evaluated by segmenting individual loans by the risk characteristics of the loan (such as the amount of the loan, the nature of the collateral, and the financial status of the debtor). The loans are analyzed
to determine whether individual loans are impaired, and a specific allowance is estimated based on the present value of the expected future cash flows of the receivable discounted at the loan's original effective interest rate or the fair value of the collateral adjusted for estimated costs to sell.
After establishment of the collective and the specific allowance for credit losses, if management believes the allowance does not reflect all losses inherent in the portfolio due to changes in recent economic trends and conditions or other relevant factors, an adjustment is made based on management judgment.
b. It is the obligation of the audit firm to determine the reasonableness of management’s assumptions used to determine fair values and impairments. Although these are subjective, the auditor must still test the reasonableness of the estimates, and decide if they are appropriate or if further impairments exist. The risk to the audit firm is if they issue an unqualified opinion using these estimates, which are later determined to be wrong by a material amount.
Chapter 14
1.
2. If going-concern audit report is issued by the firm, suppliers and creditors of Form will likely to lose faith the business and thus causes it to fail. Suppliers and creditors will be hesitant to do business with the company or to lend money, thereby hastening its demise.
3. Audit firms may be reluctant to issue a going-concern audit report simply because it is difficult to know beforehand whether a financial distress client will actually cease operations or will somehow pull itself away from the outcome.
4.
Chapter 16
2. Intangibles - Goodwill and Other. In July 2012, the FASB issued a new accounting standard that provides the option to evaluate qualitative factors to determine whether a calculated impairment test for indefinite-lived intangible assets is necessary. The new accounting standard is effective for us as of January 1, 2013.
No goodwill had been recorded.
3.a. Warranty Costs
FordWarranty accruals accounted for in Accrued liabilities and deferred revenue for the years
ended December 31 were as follows (in millions):
Toyota
Liabilities for product warranties and liabilities for recalls and other safety measures have been combined into a single table showing an aggregate liability for quality assurances due to the fact that both are liabilities for costs to repair or replace defects of vehicles and the amounts incurred for recalls and other safety measures may affect the amounts incurred for product warranties and vice versa.
The net changes in liabilities for quality assurances above for the years ended March 31, 2010, 2011 and 2012 consist of the following:
The table below shows the net changes in liabilities for recalls and other safety measures which are comprised in liabilities for quality assurances above for the years ended March 31, 2010, 2011 and 2012.
3.b Ford- Included in warranty cost accruals are the costs for basic warranty coverages and field service actions (i.e., product recalls and owner notification programs) on products sold.
Toyota- provides product warranties for certain defects mainly resulting from manufacturing based on warranty contracts with its customers at the time of sale of products. Toyota accrues estimated warranty costs to be incurred in the future in accordance with the warranty contracts. In addition to product warranties, Toyota initiates recalls and other safety
measures to repair or to replace parts which might be expected to fail from products safety perspectives or customer satisfaction standpoints.
