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NEW QUESTION: 1
High Plains Tubular Company is a leading manufacturer and distributor of quality steel products used in energy, industrial, and automotive applications worldwide.
The U.S. steel industry has been challenged by competition from foreign producers located primarily in Asia. All of the U.S. producers are experiencing declining margins as labor costs continue to increase. In addition, the U.S. steel mills arc technologically inferior to the foreign competitors. Also, the U.S. producers have significant environmental issues that remain unresolved.
High Plains is not immune from the problems of the industry and is currently in technical default under its bond covenants. The default is a result of the failure to meet certain coverage and turnover ratios. Earlier this year, High Plains and its bondholders entered into an agreement that will allow High Plains time to become compliant with the covenants. If High Plains is not in compliance by year end, the bondholders can immediately accelerate the maturity date of the bonds. In this case. High Plains would have no choice but to file bankruptcy.
High Plains follows U.S. GAAP. For the year ended 2008, High Plains received an unqualified opinion from its independent auditor. However, the auditor's opinion included an explanatory paragraph about High Plains' inability to continue as a going concern in the event its bonds remain in technical default.
At the end of 2008, High Plains' Chief Executive Officer (CEO) and Chief Financial Officer (CFO) filed the necessary certifications required by the Securities and Exchange Commission (SEC).
To get a better understanding of High Plains' financial situation, it is helpful to review High Plains' cash flow statement found in Exhibit 1 and selected financial footnotes found in Exhibit 2.
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Exhibit 2: Selected Financial Footnotes
1. During 2008, High Plains' sales increased 27% over 2007. Its sales growth continues to significantly exceed the industry average. Sales are recognized when a firm order is received from the customer, the sales price is fixed and determinable, and collectability is reasonably assured.
2. The cost of inventories is determined using the last-in, first-out (LIFO) method. Had the first-in, first-out method been used, inventories would have been $152 million and $143 million higher as of December
31,2008 and 2007, respectively.
3. Effective January 1, 2008, High Plains changed its depreciation method from the double-declining balance method to the straight-line method in order to be more comparable with the accounting practices of other firms within its industry. The change was not retroactively applied and only affects assets that were acquired on or after January 1,2008.
4. High Plains made the following discretionary expenditures for maintenance and repair of plant and equipment and for advertising and marketing:
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5. During the fiscal year ended December 31, 2008, High Plains sold $50 million of its accounts receivable, with recourse, to an unrelated entity. All of the receivables were still outstanding at year end.
6. High Plains conducts some of its operations in facilities leased under noncancelable capital leases.
Certain leases include renewal options with provisions for increased lease payments during the renewal term.
7. High Plains' average net operating assets at the end of 2008 and 2007 was $977.89 million and $642.83 million, respectively.
Does High Plains' accounting treatment of its capital leases and receivable sale lower its earnings quality?
A. The treatment of the receivables sale lowers earnings quality.
B. Both treatments lower earnings quality.
C. The treatment of capital leases lowers earnings quality.
Answer: A
Explanation:
Explanation/Reference:
Explanation:
A capital lease is reported on the balance sheet as an asset and as a liability. In the income statement, the leased asset is depreciated and interest expense is recognized on the liability. Thus, capitalizing a lease enhances earnings quality. An operating lease lowers earnings quality.
The receivable sale, with recourse, lowers earnings quality. The sale is treated as a collection thereby increasing operating cash flow. However, High Plains is still responsible to the buyer in the event the receivables are not ultimately collected. Thus, the receivable sale is a collateralized borrowing arrangement that remains orT-balance-sheet. (Study Session 7, LOS 25.d,f)

NEW QUESTION: 2
A customer agrees that the IBM System z196 is the right solution, but needs to see the total packaged proposal. Before suggesting a financing solution, which of the following does the System z Sales Specialist need to understand about the customer's decision criteria?
I. Tendency to lease or purchase
II. Expense to come under an operating budget or under a capital budget
III. Customer credit rating
IV.
Tendency to buy used or new processors
A. I and IV
B. I and II
C. II and III
D. Ill and IV
Answer: A

NEW QUESTION: 3
In defining an URL scheme for a MAF application, what can the URL payload carry at run time when the event listener captures the URL scheme call?
A. The URL scheme name might be carried along with an optional hierarchical part and multiple parameter key-value pairs. No other URL is valid. For example, it might carry:
myapp://
myapp://doSomething
myapp://doSomething?value1=123
myapp://doSomething?value1=123&value2=true
B. The URL scheme name and optionally a hierarchical part might be carried along with an optional single parameter key-value pair. For example, it might carry:
myapp://
myapp://doSomething
myapp://doSomething?value1=123
C. The URL scheme name and optionally a hierarchical part might be carried. No other URL is valid. For example, it might carry:
myapp://
myapp://doSomething
D. Only the URL scheme name might be carried. No other URL is valid. For example, it might carry:
myapp://
Answer: D
Explanation:
Explanation/Reference:
Explanation:


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