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What are diversified companies? What accounting problems are related to diversified companies?

Short Answer

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The diversified company has the characteristics of offering different or mixed trimming structures but has lower than normal returns due to market risks and lots of complexities.

Step by step solution

01

Meaning of Diversified Companies

A diversified company may be a type of company that directs a few lines of business - most of them irrelevant to each other. Creating a diversified company is useful, as it gives many diverse product lines and customers, which is protected from any financial downswings or business changes that may occur within the company.

02

Explaining the accounting problems related to diversified companies.  

The accounting problems associated with diversified companies are:

  1. The issue of marking a segment for purposes of a declaration relating to money,
  2. The trouble of designing common or combined costsinto separate parts, and
  3. The issue of estimating the consequences of when an unreliable deal of exchange pricing is involved.

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Most popular questions from this chapter

โ€œThe significance of financial statement data is not in the amount alone.โ€ Discuss the meaning of this statement.

What are the accounting problems related to the presentation of interim data?

(Disclosure of Estimates) Nancy Tercek, the financial vice president, and Margaret Lilly, the controller, of Romine Manufacturing Company are reviewing the financial ratios of the company for the years 2017 and 2018. The financial vice president notes that the profit margin on sales ratio has increased from 6% to 12%, a hefty gain for the 2-year period. Tercek is in the process of issuing a media release that emphasizes the efficiency of Romine Manufacturing in controlling cost. Margaret Lilly knows that the difference in ratios is due primarily to an earlier company decision to reduce the estimates of warranty and bad debt expense for 2018. The controller, not sure of her supervisorโ€™s motives, hesitates to suggest to Tercek that the companyโ€™s improvement is unrelated to efficiency in controlling cost. To complicate matters, the media release is scheduled in a few days.

Instructions

  1. What stakeholders might be affected by Tercekโ€™s media release?

What type of disclosure or accounting do you believe is necessary for the following items?

a) Because of a general increase in the number of labor disputes and strikes, both within and outside the industry, there is an increased likelihood that a company will suffer a costly strike in the near future.

b) A company reports a material unusual and infrequent loss on the income statement. No other mention is made of this item in the annual report.

c) A company expects to recover a substantial amount in connection with a pending refund claim for a prior yearโ€™s taxes. Although the claim is being contested, counsel for the company has confirmed the clientโ€™s expectation of recovery.

What is the relationship of the asset turnover to the return on assets?

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