Fin 3321 – Summer 2014
Exam 2
Moore
Exam 2 – Fin 3321 – Statement Analysis Summer 2014 (Moore)
Section Time:
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Ethical conduct is an important component of any profession. The Texas Tech University Code of
Student Conduct is in force during this exam. Students providing or accepting unauthorized
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The First 3 Problems must be completed in Class. No extra time will be allowed on these items. The
excel file work and accompanying write-ups (Problems 4-8) may be started during class. Email me
the updated is file with your exam work prior to leaving the exam site. This graded work will be
assessed completely without late penalty. You will have until 11pm on Thursday, 19 June to
resubmit the excel file work associated with the take-home part of the exam. You may use this to
correct errors you may have provided on the initial submission of the file (problems 4-8) and to fully
complete any unfinished work relative to the end of the in-class part of the exam.
Download the indicated Excel file with information related for Baxter Medical Equipment Corp, a
medical equipment manufacturer. You will need this file and the information to answer much of this
exam. Clearly show all inputs to be eligible for credit. Numerical answers must be taken to 2
decimal places (e.g. 25.42) and percentage based answers must be taken to the tenth of a percent
(e.g. 36.4%). Time measures must be denoted by days, turnover ratios by turns, and pure numbers
should have no suffix. All information (on financials) stated in thousands except share data.
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Fin 3321 – Summer 2014
Exam 2
Moore
Problem 1 (10 Points) (Short Essay) Company Valued:_________
Briefly comment on the quality of financial disclosure for the company your group is valuing. Provide
specific examples of good and poor disclosure (related to both Type 1 and Type 2 KAP’s) on both an
absolute and relative basis (how your company’s disclosure compares to the benchmark companies).
Problem 2 (10 Points) (show your work)
The Excel file contains a Tab “Goodwill for 2013” that contains information regarding a key
acquisition made during 2013.
Use this information to compute the goodwill attributed to this acquisition.
On September 6, 2013, Baxter acquired 100 percent of the voting equity interests in Indap Holding
AB, the holding company for Gambro, a privately held dialysis product company based in Lund,
Sweden.
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Fin 3321 – Summer 2014
Exam 2
Moore
Problem 3 – Overs and Unders (5 Points)
Analyze the following transactions (omissions or incorrect accounting treatments) and assess whether
the accounts are Overstated, Understated, or No Effect. Fill in the appropriate boxes as (O), (U), (N).
Base your analysis on Proper GAAP. Number 10 relates to impact resulting from the decision.
Assets
3
The company used too small
a discount rate to estimate
the present value of future
service costs on a defined
benefit pension plan
The company used a rate in
estimating account
receivable defaults that was
too large
The company capitalized all
research and development
costs
4
The company recognized all
gift card sales as revenues in
the year sold even though
they don't expire for 3 years
5
The company, an importer,
failed to hedge foreign
exchange risk in a year when
the dollar was strengthening
1
2
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Liabilities
Equity
Revenues
Expenses
Net Income
Fin 3321 – Summer 2014
Exam 2
Moore
Problem 4 (20 Points)
Prepare a complete Financial Analysis for Baxter Corporation for all possible years.

Prepare, in separate sections, an analysis of the Liquidity, Operating Efficiency, Profitability
and Leverage/Capital Structure risk of Baxter. Make sure you clearly associate and identify the
specific variables you include in each section. (e.g. Current Ratio is in the Liquidity analysis
section.) (compute the ratios on a separate tab in the provided spreadsheet).

Make sure to assess the trend performance of each ratio (improving, declining, no change)
and then assess to overall category/dimension (e.g. liquidity). Providing an opinion as to the
impact of and response to the financial crisis would be appropriate in your brief and concise
write-up.
 Working Capital 
 Retained Earnings 
Z  score  1.2 
 1.4 

 Total Assets 
 Total Assets 
 Earnings Before Interest and Taxes 
 3.3

Total Assets

 Market Value of Equity 
 0.6 
 Book Value of Liabilitie s 
 Sales

 1.0 
 Total Assets 
Market Cap information is provided on the Income Statement tab of the downloaded file.
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Fin 3321 – Summer 2014
Exam 2
Moore
Problem 5 (10 Points) - Goodwill
Assume that Goodwill has a “shelf life” of 5 years (provides a competitive advantage) for a medical
equipment manufacturer. Furthermore, assume all acquisitions take place on December 31 each
year. Prepare a Goodwill amortization schedule on the provided tab for Baxter that will be your
working papers to restate goodwill. Your schedule must show the adjustment to operating expenses
and the adjustment to the goodwill balance for a restated financial statement.
Problem 6 (10 Points) – Capitalize Operating Leases
On the Baxter Excel file, you will see a tab labelled “Contractual Obligations”. Using only this
information, prepare, in good form, schedules for 2009, 2010 and 2013 that capitalize the operating
leases identified on each 10-K. You will have to estimate the appropriate discount rate. In this
schedule, be sure to show interest expense and amortize the lease. Finally, show the depreciation
schedule for each lease year set.
Furthermore, assume all leases are signed on December 31 each year. Prepare this work on the
Caplitalized OL tab provided on the Baxter excel file.
Problem 7 (10 Points) – Capitalize R&D Expenses
On the Baxter Excel file, you will see R&D expenses disclosed on the Income Statements. A tab
labelled “Capitalized R&D” has been provided on the Baxter excel file. Assume R&D activities provide
an 8-yeqar benefit and that R&D takes place continuously throughout the year. Prepare, in good
form, schedules for restating R&D benefits as a capitalized asset that wouild be systematically
amortized over its estimated useful life. Prepare this for all 5 years of activitiy. Show the capitalized
R&D asset balance, R&D impairment and the net adjustment to the income statement for all possible
years.
Problem 8 (25 Points) – Restate the 2009 Financials in good form.
Extra Credit Problem (10 Points) – Restate the 2010 Financials
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