Valuation Method

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Posted on February 22, 2022

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This Professional Assignment (PA1) requires a minimum of three (3) pages (excluding tables, graphs, appendices, title, and reference pages) APA formatted Word Document in response to the following questions. Your answers should be clear, well-organized, and specific. Provide a concise, cogent argument and include details to support your response. Include Intext citation that matches peer reviewed references minimum five 

 

  1. For some transactions, GAAP requires that value changes are recognized on the balance sheet and the income statement when they occur, even if not realized. Discuss what types of transactions get this type of treatment and the logic behind this accounting.

 

  1. There are three valuation methods that reflect historical values: acquisition cost, adjusted acquisition cost, and present value of cash flows using historical interest rates. For each of these three methods discuss:
  2. Please explain what each of the valuations mentioned above represents. Provide an example of a balance sheet item that is valued by each method. 
  3. Describe the advantages and disadvantages of each method.

 

3.   Biotech sold a patent on a new blood analyzer to Pharma. The sales agreement which was signed on January 1, 2018 requires Pharma to pay Biotech $1 million immediately. In addition, Pharma is required to pay $700,000 December 31 of each year for 20 years starting with December 31, 2018. Pharma and Biotech judge that 10% is an appropriate discount rate for this arrangement.

  1. Compute the present value of the receivable on Biotech’s books on January 1, 2018 immediately after receiving the $1 million down payment.
  2. Calculate the present value of the receivable on Biotech’s books on December 31, 2018.
  3. Determine the present value of the receivable on Biotech’s books on December 31, 2019.

 

      1. Jurgen Company’s income tax return shows income taxes for 2019 of $75,000. For financial reporting, the firm reports deferred tax assets of $67,900 at the beginning of 2019 and $63,600 at the end of 2019. It reports deferred tax liabilities of $53,600 at the beginning of 2019 and $59,400 at the end of 2019.
    1. Compute the amount of income tax expense for 2019.
    2. Assume for this part that the firm’s deferred tax assets are as stated above for 2019, but that its deferred tax liabilities were $83,500 at the beginning of 2019 and $72,100 at the end of 2019. Compute the amount of income tax expense for 2019.

c. Explain contextually why income tax expense is higher than taxes owed 4(a) and lower than taxes owed in 4(b).

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