What kind of an accounting change is this

Assignment Help Financial Accounting
Reference no: EM134149

Question :

In summer 2005, TimeWarner Inc. announced they were "setting aside" $3 billion to settle lawsuits from shareholders who alleged that they were wrongfully mislead by executives at TimeWarner and AOL at the time of the AOL/Time Warner "merger". This all dates back to the height of the dot-com "bubble" in early 2000 when the combined market evaluations of both companies (outstanding common stock times market price of the stock) exceeded more than $300 billion; now, the Company's market evaluation is much less.

The lawsuits were really brought against TimeWarner in 2003 and early 2004 at which time the organization had said the lawsuits were "without merit", and they were "forcefully" defending the lawsuits.

Suppose that "setting aside" meant that the Company set-up a liability for the ultimate settlement of the lawsuits with a corresponding charges that was run through the 2005 income statement. Also consider that when this amount is actually paid-out it will then be deductible for tax purposes. Please answer the given questions.

a) What kind of an accounting change is this? It indicates that TimeWarner rapidly changed its position with regard to these lawsuits. Is this a change in accounting principle?

b) How did this affect the 2005 cash flow statement? Be definite and give amounts. {Consider TimeWarner uses the indirect technique and also assume a 40% tax rate.}

c) How did this affect future cash flow statements when the lawsuits were essentially settled, i.e., money was paid to the plaintiffs?

Reference no: EM134149

Reviews

Write a Review

 

Financial Accounting Questions & Answers

  To accrue rent recognized but not yet received

By accessing this problem Assistance, you will learn while you earn points based on the Point Potential Policy set by your instructor.

  Prepare a new standard for the recognition

Prepare a new standard for the recognition, measurement and presentation of leases.

  Financial statement analysis and preparation

Financial Statement Analysis and Preparation, The stockholders' equity section of Mission Company

  Dement publishing division

Dement Publishing Division and Revenue to be recognized

  What consolidation entry could be needed for these bonds

What consolidation entry could be needed for these bonds on December 31, 2012?

  Replacement method to evaluate depreciation

Canliss Mining uses the replacement method to evaluate depreciation on its office equipment.

  Market price of scornick''s common stock

The market price of Scornick's common stock subsequently declined by 40 percent.

  What is the existing value of the company

What is the existing value of the company? (Do not round intermediate evaluations and round your final answer to 2 decimal places.

  Complete the needed federal individual income tax return

Complete the needed federal individual income tax return forms for the subsequent taxpayer

  Evaluate the under- or over-applied manufacturing overhead

Evaluate the under- or over-applied manufacturing overhead for 2012. Prorate the amount evaluated in based on the ending balances (before prorating) of Work in Process, Finished Goods, and Cost of Goods Sold.

  Explain company''s accountant to administer

Will the decision about the transfer price affect consolidated total income? Which technique would be easiest for the company's accountant to administer? As the company's accountant, what advice could you provide to these officials?

  Accounting concepts and practices

Adopt an investment strategy that seeks to maximise both financial return

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd