Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

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

Short Answer

Expert verified

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.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

The following statement is an excerpt from the FASB pronouncement related to interim reporting. Interim financial information is essential to provide investors and others with timely information as to the progress of the enterprise. The usefulness of such information rests on the relationship that it has to the annual results of operations. Accordingly, the Board has concluded that each interim period should be viewed primarily as an integral part of an annual period. In general, the results for each interim period should be based on the accounting principles and practices used by an enterprise in the preparation of its latest annual financial statements unless a change in an accounting practice or policy has been adopted in the current year. The Board has concluded, however, that certain accounting principles and practices followed for annual reporting purposes may require modification at interim reporting dates so that the reported results for the interim period may better relate to the results of operations for the annual period.

Instructions

The following six independent cases present how accounting facts might be reported on an individual companyโ€™s interim financial reports. For each of these cases, state whether the method proposed to be used for interim reporting would be acceptable under generally accepted accounting principles applicable to interim financial data. Support each answer with a brief explanation.

d) Gansner Company realized a large gain on the sale of investments at the beginning of the second quarter. The company wants to report one-third of the gain in each of the remaining quarters.

(Effect of Transactions on Financial Statements and Ratios) The transactions listed below relate to Wainwright Inc. You are to assume that on the date on which each of the transactions occurred, the corporationโ€™s accounts showed only common stock (\(100 par) outstanding, a current ratio of 2.7:1, and a substantial net income for the year to date (before giving effect to the transaction concerned). On that date, the book value per share of stock was \)151.53.

Each numbered transaction on the next page is to be considered completely independent of the others, and its related answer should be based on the effect(s) of that transaction alone. Assume that all numbered transactions occurred during 2018 and that the amount involved in each case is sufficiently material to distort reported net income if improperly included in the determination of net income. Assume further that each transaction was recorded in accordance with generally accepted accounting principles and, where applicable, in conformity with the all-inclusive concept of the income statement.

For each of the numbered transactions you are to decide whether it:

  1. Increased the corporationโ€™s 2018 net income.
  2. Decreased the corporationโ€™s 2018 net income.
  3. Increased the corporationโ€™s total retained earnings directly (i.e., not via net income).
  4. Decreased the corporationโ€™s total retained earnings directly.
  5. Increased the corporationโ€™s current ratio.
  6. Decreased the corporationโ€™s current ratio.
  7. Increased each stockholderโ€™s proportionate share of total stockholdersโ€™ equity.
  8. Decreased each stockholderโ€™s proportionate share of total stockholdersโ€™ equity.
  9. Increased each stockholderโ€™s equity per share of stock (book value).
  10. Decreased each stockholderโ€™s equity per share of stock (book value).
  11. Had none of the foregoing effects.

Instructions

List the numbers 1 through 9. Select as many letters as you deem appropriate to reflect the effect(s) of each transaction as of the date of the transaction by printing beside the transaction number the letter(s) that identifies that transactionโ€™s effect(s).

Transactions

  1. In January, the board directed the write-off of certain patent rights that had suddenly and unexpectedly become worthless.

For each of the following subsequent events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose.

  1. Settlement of a tax case at a cost considerably in excess of the amount expected at year-end.
  2. Introduction of a new product line.
  3. Loss of assembly plant due to fire.
  4. Sale of a significant portion of the companyโ€™s assets.
  5. Retirement of the company president.
  6. Issuance of a significant number of ordinary shares.
  7. Loss of a significant customer.
  8. Prolonged employee strike.
  9. Material loss on a year-end receivable because of a customerโ€™s bankruptcy.
  10. Hiring of a new president.
  11. Settlement of prior yearโ€™s litigation against the company (no loss was accrued).
  12. Merger with another company of comparable size.

The following comment appeared in the financial press: โ€œInadequate financial disclosure, particularly with respect to how management views the future and its role in the marketplace, has always been a stone in the shoe. After all, if you donโ€™t know how a company views the future, how can you judge the worth of its corporate strategy?โ€ What are some arguments for reporting earnings forecasts?

What is the difference between a CPAโ€™s unqualified opinion or โ€œcleanโ€ opinion and a qualified one?

See all solutions

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free