chapter 11 val adj no solutions

8/17/2019 Chapter 11 Val Adj No Solutions

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1991–2009 NavAcc LLC, G. Peter & Carolyn R. Wilso

Chapter 11: Valuation Adjustments

Chapter 11Valuation adjustments

TABLE OF CONTENTS

Overview 3

Relating Accounting for Marketable Securities to Other Balance-Sheet Items 3Classifying Marketable Securities 4

Classification Consequences for Financial Statements 4

Available-for-sale Securities 4

Trading Securities 5

Held-to-maturity Securities 5

Tax Consequences 5

A Closer Look at the Key Concepts 6

Example 6

Assumptions 6

Recording the Purchase 7

Recording Valuation Adjustments 7

Intel’s Related Activity 8

Realized Gains and Losses 10

Example 10

Intel’s Comprehensive Income Footnote 11

Exercise 11.01 12

Exercise 11.02 13

Exercise 11.03 14

Exercise 11.04 16


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1991–2009 NavAcc LLC, G. Peter & Carolyn R. Wilson

Navigating Accounting®

Exercise 11.05 17

Exercise 11.06 18

Exercise 11.07 19

Exercise 11.08 20

Exercise 11.09 21

Exercise 11.10 22

Exercise 11.11 23


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OVERVIEWThis chapter examines how investments (also called marketable securities)affect financial statements and footnote disclosures under US GAAP.

This chapter has two sections: (1) this overview, which summarizes thekey concepts and links them to those you learned in other chapters, and(2) “A Closer look at the Key Concepts,” which uses an example andIntel disclosures to develop and illustrate the concepts in the overview.Skim the overview the first time through the chapter and then reread itmore carefully after you have read “A Closer Look at The Key Concepts.”

One of the learning objectives is to help you better understand thedifference between realized and unrealized gains and losses. Realizedgains and losses arise from selling investments or other assets.Unrealized gains and losses arise from revaluing unsold investments or

other assets to their fair value at the end of the reporting period.If you purchase shares of stock in Intel and the value of your sharesincreases, you have an unrealized gain. If you sell the shares, you havea realized gain. Determining unrealized gains and losses on marketablesecurities is relatively straightforward. You simply check the priceof recent trades versus the price you paid for your shares. However,determining the fair values of other assets not traded regularly are moredifficult to assess. Thus, estimating their unrealized gains and lossesreliably is more problematic.

relating aCCounting for marketable

seCurities to other balanCe-sheet items

Keep in mind, most balance sheet assets and liabilities have unrealizedgains and losses; their fair values differ from their financial reportingvalues. What distinguishes marketable securities from other balance-sheet items under US GAAP is marketable securities’s unrealized gainsand losses are recognized in balance sheets; the securities are stated attheir fair market values. The exception is debt securities classified assecurities intended to be held to maturity, meaning the company intendsto hold them until the principal is repaid by the issuer. These securities

are reported at historical cost, with some minor historical-cost basedadjustments not depending on changes in the securities’ values.


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Classifying marketable seCurities

Marketable securities are classified in one of three ways. The threeclassifications depend on what management intends to do with the

securities, not on characteristics of the securities themselves:• Available-for-sale securities: Management has purchased these

securities for liquidity and thus plans to sell them when and if thecompany needs cash. Most companies classify most of their securitiesas available-for-sale.

• Trading securities: Management has purchased these securities witha speculative intent. They expect the value of the shares to appreciatequickly. Companies actively buying and selling shares frequentlyoften have trading desks where traders speculate on very short-termopportunities (they buy and sell the same security within a very short

time interval, perhaps a few hours or less). The portfolio of sharestraded by these individuals is typically classified as trading securities.Some of Intel’s securities are classified this way, but generally onlybanks and other financial institutions use this classification.

• Held-to-maturity securities: These are debt maturities managementintends to hold until maturity: until the principal is repaid by theissuer. These securities are reported at historical cost, with some minorhistorical-cost based adjustments not dependent on changes in thesecurities’ values.

ClassifiCation ConsequenCes for finanCial statements

The classification decisions can have dramatic financial-statementconsequences, yet the accounting differences are pretty easy tocomprehend if you focus on the big picture and, in particular, on whathappens to both sides of the balance sheet when the securities’ valueschange:

Available-for-sale Securities

Available-for-sale securities are recognized at their fair values. Valuation

adjustments are recorded at the end of the period, ensuring the securitiesare stated at their fair values.

Here is how these adjustments affect the balance sheet equation:

Assets

• The securities’ values increase (decrease) by the adjustment needed tostate them at their fair values.


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Equities

• If the adjustment increases (decreases) the value of the securities,a deferred tax liability (asset) is recognized to reflect the taxconsequences that would occur if the securities were sold at theircurrent values in the future.

• If the adjustment increases (decreases) the value of the securities,other comprehensive income (OCI) reflects the after-tax gain (loss) that would accrue to owners if the securities were sold at their currentvalues. OCI is closed to accumulated OCI at the end of the reportingperiod.

Trading Securities

The accounting for trading securities is similar to available-for-salesecurities except the after-tax effects of valuation adjustments effect net

income rather than OCI. Thus, unrealized gains and losses associated withtrading securities are recognized in income.

Held-to-maturity Securities

Held-to-maturity securities are not adjusted for increases in fair value but,like all other assets, are adjusted for impairments (significant declines)based on the “lower of cost or market” principle.

tax ConsequenCes

Realized gains and losses affect the current provisions of tax expenses, just

as they do for PP&E disposals. Thus, these tax effects are included in theentry recording the tax expense.

Unrealized gains and losses also have tax effects that depend on the waythe investments are classified. As indicated earlier, unrealized gains andlosses of investments classified as trading assets are recognized in financialreporting income. Generally, these unrealized gains and losses are notrecognized for tax reporting until they are realized. Thus, unrealized gainsand losses on trading assets recognized in financial reporting incomegenerally affect the deferred tax provision.

Unrealized gains and losses on available-for-sale investments are not

recognized in financial reporting income, but they are recognized inowners’ equity. Intel mentions the tax consequences of these unrealizedgains and losses in the Investments section of the Accounting Policiesfootnote (underline added for emphasis):

Investments designated as available-for-sale are recorded at fairvalue, with unrealized gains and losses, net of tax, recorded inaccumulated other comprehensive income.

Page 54, Intel’s 2006 Annual Report


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A CLOSER LOOK AT THE KEYCONCEPTS Accounting for realized investment security gains and losses is similarto accounting for PP&E disposals. PP&E disposals have the followingconsequences:

• cash (or other proceeds) increases from selling PP&E,

• the historical cost of the PP&E is removed from the books,

• the accumulated depreciation associated with the disposal is removedfrom the books, and

• a gain or loss is recorded, depending on whether the cash receivedexceeds, or is less than, the PP&E’s book value (historical cost less

accumulated depreciation).The realized gains (losses) are determined essentially the same wayfor marketable securities as for PP&E, but several accounts related tounrealized gains and losses must be removed when securities are sold. Tothis end, you must first learn how unrealized gains and losses are recorded.

The realized gain (loss) from selling or otherwise disposing of an asset isthe fair value of the proceeds received (e.g., cash) less the cost-based valueof the disposed asset.

The cost-based value is (1) the historical cost of the asset, less (2) acontra account such as accumulated depreciation or amortization (if oneexists), plus (3) accrued interest income that has not been collected. Instudying marketable securities and other balance-sheet items reportedat fair value, you must be careful to distinguish cost-based values frommarket-based values (fair values), which continually change with stock ordebt prices.

As indicated earlier, unrealized gains and losses differ from realized onesin that the related asset has not been sold. Otherwise, the definition isessentially the same: the unrealized gain (loss, if negative) of an asset is itsfair value less its cost-based value. Realized and unrealized gains and lossesare defined similarly for liabilities.

example

Assumptions• XYZ Company buys a share of another company’s stock for $1 at the

start of XYZ’s first year of operations.

• XYZ classifies the stock as available-for-sale.


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• The market value of the share is $4 at the end of the first year.

• XYZ sells the stock for $5 one month into its second year.

Recording the Purchase

When the security is purchased, XYZ records:• a $1 cash decrease, and

• a $1 increase to a cost-based marketable security asset accountclassified as available-for-sale. As is true for gross PP&E, the amountin this cost-based account remains unchanged so long as XYZ ownsthe security.

Recording Valuation Adjustments

On the asset side of the balance sheet, valuation adjustments are recordedin adjunct or contra accounts. An adjunct account is the opposite of

a contra account; a companion account increasing the value of an asset,liability, or owners’ equity item above its cost. In contrast to PP&E,many of these adjunct and contra accounts are not disclosed separatelyin financial reports. Rather, as we shall see for Intel, they are used toaccumulate data needed to meet GAAP disclosures.

On the equity side of the balance sheet, valuation adjustments arerecorded as [unrealized] gains/losses in other comprehensive income.These are closed into accumulated other comprehensive income at theend of the reporting period.

Under GAAP, XYZ reports a $4 asset for this marketable security on its

end-of-year-one balance sheet. Stated alternatively, the recognized “bookvalue” is the market-based or fair value of $4. The cost-based value isstill $1, but there is an unrealized gain of $3: the market-based value of$4 less the cost-based value of $1. Unrealized gains and losses changedaily with stock prices, but typically they are only updated in accountingsystems at the end of accounting periods. There are exceptions; somefinancial institutions and other companies with large investment holdingsupdate these accounts daily to facilitate internal investment decisions.

How is the $3 unrealized gain recorded? Assuming a $40% future taxrate, the entry to record the gain is:

• increase the marketable security asset adjunct account by $3 (thepretax unrealized gain),

• increase other comprehensive income by $1.80 (the after taxunrealized gain), and

• increase the deferred tax liability by $1.20 (the tax that will be paidin the future, if the share is sold for $4, which equals 40% of the $3gain).


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• Other comprehensive income is closed into Accumulated othercomprehensive income at the end of the period.

Intuitively, the government and owners of XYZ both benefit from thegain, but neither will receive cash until the gain is realized (assuming thestock price does not drop).

In the MMS model, we split this event into two parts: (1) record the $3pretax unrealized gain (event MMS51), and (2) record the $1.20 relatedtax consequences (event MMS56). Thus, first increase the equity adjunctaccount by the pretax gain of $3 and then decrease it by the $1.20 taxconsequences.

The $3 in the adjunct asset account is added to the $1 in the cost-basedmarketable security account to get the $4 “fair value” recognized onthe balance sheet. The $3 unrealized gain is typically reported in thefootnotes. If the share price had dropped from $1 to $0.25, a contraaccount would be used to record a $0.75 unrealized loss.

intel’s related aCtiVity

Next we will relate the example to Intel. Intel reports $178 year-endunrealized gains and ($1) of unrealized losses for 2006 as summarizedbelow. Thus, Intel recognizes a pretax net unrealized gain of $177 ($178 -$1) in its balance sheet for 2006. Intel recognized a pretax net unrealizedgain of $159 ($164 - $5) one year earlier.

The following table summarizes the pretax unrealized gains and losses onIntel’s available-for-sale securities:

These net gains, which pertain to the available-for-sale investments only,

are recognized in Intel’s balance sheet, but not recognized in its incomestatement. The unrealized gains and losses associated with these available-for-sale securities affect other comprehensive income, rather than netincome. In contrast, unrealized gains and losses associated with tradingsecurities are recognized in income.

Unrealized gains Unrealized losses Net gains

End of 2006 $178 ($1) $177End of 2005 $164 ($5) $159Increase (decrease) $14 $4 $18

Intel's Pretax

Available-for-Sale Unrealized Gains/Losses

Page 68, Intel’s 2006 Annual Report


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• Considerable judgment is required to classify securitiesand managers are not indifferent about the outcome.Intel, would have reported about five billion dollarsless pretax income in 2000 if it had been required to

recognize unrealized losses on available-for-sale securities.• As a user of financial statements, especially for banks and

companies with large securities holdings, you need tounderstand the consequences of these judgments on netincome and know how to assess their appropriateness.

Recall from the XYZ example, a deferred tax liability recognizes theincome taxes that will be due if unrealized gains are realized, and adeferred tax asset recognizes tax benefits if unrealized losses are realized.For Intel, assuming a 35% tax rate, and multiplying the numbers in theprevious table by this rate, yields the deferred tax assets and liabilities

associated with Intel’s available-for-sale investments:

Deferred tax liability Deferred tax assetNet deferred tax

liability

End of 2006 $62.30 ($0.35) $61.95End of 2005 $57.40 ($1.75) $55.65Increase (decrease) $4.90 $1.40 $6.30

Intel's Taxes


Subtracting the table above from the earlier one yields the after-taxconsequences for accumulated other comprehensive income associated with Intel’s available-for-sale investments:

Unrealized gains Unrealized losses

Accumulated other

comprehensive

income

End of 2006 $115.70 ($0.65) $115.05End of 2005 $106.60 ($3.25) $103.35Increase (decrease) $9.10 $2.60 $11.70

Intel's Net of Taxes


Above, we estimate Intel recognized $12 of other comprehensive incomeassociated with available-for-sale investments (the change in accumulatedother comprehensive income). This estimate is very close. Intel reports a

$13 ($113 - $100) change in Accumulated net unrealized holding gainon available-for-sale investments at the bottom of its Comprehensiveincome footnote (page 71, Intel’s 2006 Annual Report). Importantly, the$13 represents the change in the unrealized gains and losses during 2006,net of taxes, not the year-end balance.


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Note Intel reports a $184 decrease in Total accumulated othercomprehensive income (loss) for 2006 (- $57 - $127), including theimpact of available-sale investments, derivatives and pension liability. This$184 change is also reported in the bottom panel on Intel’s Statement of

stockholders’ equity ($26 - $210) (page 52, Intel’s 2006 Annual Report).The deferred tax table on page 74 of Intel’s 2006 Annual Report shows a$149 net deferred tax liability for Unrealized gains on investments. Thus,our $62.30 deferred tax liability year-end 2006 estimate (in our earliertax table) is not precise. Similarly, the $57.40 year-end 2005 estimate inthe table is imprecise: Intel shows $123 in the footnote. Thus, we mustconclude that some other event or circumstance is affecting the year-endbalances (perhaps the tax consequences of derivative gains).

Later, we will see evidence suggesting deferred taxes were likely affected byunrealized gains and losses associated with financial derivatives.

realized gains and losses

Example

When XYZ sells the security for $5 one month into the second year, therealized gain is $4 = $5 - $1. This is also the unrealized gain immediatelybefore the sale. However, the recognized, unrealized, value is still $4, (theamount recognized at the end of the first year).

What is the entry to record this sale? Like recording PP&E disposals, allof the accounts related to this security must be removed from the books

and the cash proceeds and gain must be added to the books:• cash increases by $5,

• marketable securities at cost decreases by $1,

• the asset adjunct account decreases by $3,

• accumulated other comprehensive income decreases by $1.80,

• deferred taxes decrease by $1.20, and

• a $4 realized gain is recorded.

• At the end of the year, the tax effect of this entry would be recordedimplicitly to the current provision, along with the other itemsaffecting taxable income.

Recording realized gains and losses is considerably easier for MMS.Because they are in their first year, no unrealized gains and losses havebeen recognized when the securities are sold. Suppose, for example, XYZ


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company had sold its marketable security just before the close of thefirst year, and in particular, before recording unrealized gains and losses. XYZ would have recorded: (a) a $4 increase in cash, (b) a $1 decrease inmarketable securities at cost, and (c) a $3 realized gain.

Intel’s Comprehensive Income Footnote

Intel’s Comprehensive income footnote (Page 71 of its 2006 AnnualReport) presents two tables that can be interpreted in light of our earlierestimates. The first table reports two entries associated with unrealizedgains netting to $13 of other comprehensive income:

• $61 Change in net unrealized holding gain on investments, net of taxof $(33) for 2006

• less: ($48) adjustment for net realized gain or loss on investments included in net income, net of tax of $27 for 2006

The ($48) represents a transfer from Accumulated other comprehensiveincome to income on the income statement. Because it decreased othercomprehensive income, as indicated in the table, the offsetting entrymust have increased net income (to keep the balance-sheet equationbalanced). Thus, $48 was a net gain recognized in net income.

The two tax entries disclosed in the table total ($6), which is ($33)associated with the first row in the table and $27 associated with thesecond row. Thus, our $6.30 estimate of the change in net deferred taxliabilities associated with available-for-sale investments is fairly precise.

The first table in the Comprehensive income footnote reports flows- other comprehensive income. By contrast, the second table reports stocks-accumulated other comprehensive income . Notice the $113 Accumulatednet unrealized gain on available-for-sale investments reported in thesecond table is close to the $115.05 estimate for year-end 2006.


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Exercise 11.01

Record events MMS 7, 48-51 and 56 and explain how these events affectthe three financial statements.

How do these events relate to Intel? Where would you search for related disclosures in Intel’s 2006 AnnualReport?

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cash+other assets = liabilities+permanentOE+temporary OE

Assets = Liabilities + Owners' EquitiesR

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Record Keeping

and Reporting

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This exercise helps

you meet the insider

record keeping and

reporting challenge.


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Exercise 11.02

The goals of this exercise are: (1) to give you an opportunity to practicethe entries discussed in the text from the perspective of an insider, and (2)

introduce a template we will modify slightly in the next exercise to reverseengineer entries from the perspective of an outsider.

You will need to open the following Excel file to complete this exercise:Ex_11.02.xls.

Required

Given the assumptions below, complete the entries and year-end balancesin the Insiders_Val_Adj_ Template worksheet of Ex_11.02.xls.

Assumptions for years 1 and 2

• The tax rate is 35%

• All securities are classified as available for sale

Year-1

• Purchase $1,000 of securities

• Sell securities costing $175 for $200 prior to these securities being written to fair value for the first time at year-end. Thus, there wereno previously recognized unrealized gains or losses associated withthe sold securities.

• At year end, the investment portfolio has $300 of unrealized gains

and $100 of unrealized losses. Year-2


• Sell several securities during the year with a total historical costof $250 for $400. Some of these securities had a total of $120unrealized gains, others had a total of $20 of unrealized losses,and the remainder had no previously recorded unrealized gains orlosses.

• At year-end, management concluded part of the portfolio had a

$40 other-than-temporary loss. Management’s policy is to chargeother-than-temporary losses directly to the historical cost securitiesaccount.

• At year end, the investment portfolio has $430 of unrealized gainsand $150 of unrealized losses.

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cash+other assets = liabilities+permanentOE+ temporary OE


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Record Keeping

and Reporting

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This exercise helps

you meet the insiders’

record keeping and

reporting challenge.


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Exercise 11.03

The goal of this exercise is to introduce a template we will use to reverseengineer available-for-sale-investments’ entries from the perspective of an

outsider. You will need to open the following Excel file to complete this exercise:Ex_11.03.xls.

Template Modications

As indicated below, the events here are the same as those in Exercise11.02. However, the outsider template introduced here combines someof the accounts and entries we used in Exercise 11.02. Specifically, thetemplate:

• Has 14 unknown items, X1-X14, and contains a general structure

for available-for-sale-investments’ valuation adjustments based on theentries in Exercise 11.02.

• Records securities sales in one entry rather than three.

• Nets the deferred tax assets and liabilities into a single net deferred taxliability account: NetDTL = DTL - DTA.

• Nets unrealized gains and losses into a single net unrealized gainsaccount: Neturg = Msurg - Msurl.

Assumptions

The assumptions are the same as those in Exercise 11.02:

Assumptions for years 1 and 2

• The tax rate is 35%

• All securities are classified as available for sale

Year-1


• Sell securities costing $175 for $200 prior to these securities being written to fair value for the first time at year-end. Thus, there were

no previously recognized unrealized gains or losses associated withthe sold securities.


Year-2


Entr ies

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cash+other assets = liabilities+permanentOE+temporary OE


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DirectCash Flows BalanceSheets IncomeStatements

Record Keeping

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Icon

This exercise

helps you meet the

outsiders’ record

keeping and reporting

challenge — reverse

engineering entries.


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• Sell several securities during the year with a total historical costof $250 for $400. Some of these securities had a total of $120unrealized gains, others had a total of $20 of unrealized losses,and the remainder had no previously recorded unrealized gains or

losses.

• At year-end, management concluded part of the portfolio hada $40 other-than-temporary loss. Management’s policy is tocharge other-than-temporary losses directly to the historical costsecurities account.


Required

The template in Ex_11.03.xls has 14 variables X1-X14 in cells related toavailable-for-sale investments entries or balances. An outsiders’ challengein reverse engineering entries is to locate or estimate as many of thesevariables as possible. This following questions aim to prepare you for thischallenge.

(a) Record entries into the template by replacing variables with numbersdetermined by the above assumptions.

(b) Determine the beginning and ending balances by replacing variables with numbers.

(c) If you were an outsider who did not know the assumptions behindthe entries, what variables or combinations of variables in thetemplate might you expect to find in a company’s annual report and where would you expect to find them?


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Search Icon

This exercise

requires you

to search for

information.

Entr ies

Operating

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BegBal

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Record Keeping

and Reporting

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This exercise

helps you meet the

outsiders’ record




Exercise 11.04

This exercise pertains to investments and valuation adjustment questionson the 2007 final exam, which was based on a supplement fromMotorola’s fiscal 2006 annual report.

Required

Answer final exam 2007 questions 1h, 3e, and 4d.

Usage Icon

This exercise helps

you learn how

accounting reports

are interpreted and

used by outsiders.


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Search Icon

This exercise

requires you

to search for

information.

Exercise 11.05

This exercise pertains to investments and valuation adjustment questionson the 2006 final exam, which was based on a supplement from Hewlett-Packard’s (HP’s) fiscal 2005 annual report. HP’s fiscal 2005 year startedon November 1, 2004 and ended on October 31, 2005.

Required

Answer final exam 2006 questions 3c, 3k, and 4h.

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cash +other assets = liabilities+permanentOE+temporary OE


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Record Keeping

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Icon

This exercise

helps you meet the

outsiders’ record




Usage Icon

This exercise helps

you learn how

accounting reports

are interpreted and

used by outsiders.


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Search Icon

This exercise

requires you

to search for

information.

Entr ies

Operating

Investing

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BegBal

Tr Bal

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OperatingCash

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NetIncome


Record Keeping

and Reporting

Icon

This exercise

helps you meet the

outsiders’ record




Exercise 11.06

This exercise pertains to questions involving investments andcomprehensive income on the 2005 final exam, which was based on asupplement from Boston Scientific’s fiscal 2004 annual report.

Required

Answer final exam 2005 question 1c, 1d, 1i, 4e, 4h, and 5a. Be sure toread the directions for question 4 on the top of page 8, which specifieshow account names should be chosen.

Usage Icon

This exercise helps

you learn how

accounting reports

are interpreted and

used by outsiders.


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Search Icon

This exercise

requires you

to search for

information.

Exercise 11.07

This exercise pertains to questions involving investments andcomprehensive income on the 2004 final exam, which was based on asupplement from AMD’s fiscal 2003 annual report.

Required

Answer question final exam 2004 1b, 1d, 4b, and 4g. Be sure to readthe directions for question 4 on the top of page 8, which specifies howaccount names should be chosen.

Entr ies

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Investing

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cash +other assets = liabilities+permanentOE+temporary OE


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OperatingCash

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NetIncome


Record Keeping

and Reporting

Icon

This exercise

helps you meet the

outsiders’ record




Usage Icon

This exercise helps

you learn how

accounting reports

are interpreted and

used by outsiders.


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Search Icon

This exercise

requires you

to search for

information.

Entr ies

Operating

Investing

Financing

BegBal

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ClsIS

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Adjustments

OperatingCash

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NetIncome


Record Keeping

and Reporting

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This exercise

helps you meet the

outsiders’ record




Exercise 11.08

This exercise pertains to questions involving investments andcomprehensive income on the 2003 final exam, which was based on a

supplement from Gateway’s fiscal 2002 annual report.

Required

Answer final exam 2003 questions 1b, 2a and 2i.

Usage Icon

This exercise helps

you learn how

accounting reports

are interpreted and

used by outsiders.


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©



Search Icon

This exercise

requires you

to search for

information.

Entr ies

Operating

Investing

Financing

BegBal

Tr Bal

ClsIS

ClsRE

EndBal

Zero

Zero

Revenue

Expenses

Gains&Losses

Assets

Liabilities

Owners' Equity


cash +other assets = liabilities+permanentOE+ temporary OE


E

C

O

R

D

K

E

E

P

I

N

G

R

E

P

O

R

T

IN

G

Adjustments

OperatingCash

Reconciliations

NetIncome


Record Keeping

and Reporting

Icon

This exercise

helps you meet the

outsiders’ record




Exercise 11.09

This exercise pertains questions involving investments and comprehensiveincome on the 2000 final exam, which was based on a supplement from

Cisco’s fiscal 2000 annual report.

Required

Answer final exam 2000 questions 3i and 5.

Usage Icon

This exercise helps

you learn how

accounting reports

are interpreted and

used by outsiders.


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Exercise 11.10

This goal of this exercise is to help you learn how to reverse engineer asmany entries and related information about available-for-sale investments

as possible from Intel’s 2004 annual report, using the “outsiders” templatedeveloped in Exercise 11.03. A copy of this template is included inEx_11.08.xls, which you will use for this exercise.

You are to search for information in Intel’s 2004 annual report.

Required

Locate or estimate as many of the 14 unknowns in the outsiders’valuation adjustment template in Ex_11.08.xls as you can. Replace thetemplate variables with the numbers you estimate or locate.

Search Icon

This exercise requires you

to search for information.

Entr ies

Operating

Investing

Financing

BegBal

Tr Bal

ClsIS

ClsRE

EndBal

Zero

Zero

Revenue

Expenses

Gains&Losses

Assets

Liabilities

Owners' Equity



Assets = Liabilities + Owners'EquitiesR

E

C

O

R

D

K

E

E

P

I

N

G

R

E

P

O

R

T

I

N

G

Adjustments

OperatingCash

Reconciliations

NetIncome

D ir ec t Ca sh F l ow s B al an ce S h ee ts IncomeStatements

Record Keeping

and Reporting

Icon

This exercise

helps you meet the

outsiders’ record




Usage Icon

This exercise helps

you learn how

accounting reports

are interpreted and

used by outsiders.


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23Chapter 11: Valuation Adjustments

Exercise 11.11

This goal of this exercise is to help you learn how to reverse engineer asmany entries and related information about available-for-sale investments

as possible from Cisco’s fiscal 2000 annual report using the “outsiders”template developed in Exercise 11.03. A copy of this template is includedin Ex_11.09.xls, which you will use for this exercise.

Required

Locate or estimate as many of the 14 unknowns in the outsiders’valuation adjustment template in Ex_11.09.xls as you can. Replace thetemplate variables with the numbers you estimate or locate.

Search Icon

This exercise requires you

to search for information.

Entr ies

Operating

Investing

Financing

BegBal

Tr Bal

ClsIS

ClsRE

EndBal

Zero

Zero

Revenue

Expenses

Gains& Losses

Assets

Liabilities

Owners' Equity




E

C

O

R

D

K

E

E

P

I

N

G

R

E

P

O

R

T

I

N

G

Adjustments

OperatingCash

Reconciliations

NetIncome

DirectCash Flows BalanceSheets IncomeStatements

Record Keeping

and Reporting

Icon

This exercise

helps you meet the

outsiders’ record




chapter 11 val adj no solutions

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