11 May WHAT WOULD HAVE BEEN THE EFFECT ON EARNINGS PER SHARE IF VIDEO SUPERSTORE PURCHASES WERE NOT INCLUDED IN 1988 REVENUES?
What would have been the effect on earnings per share if Video
Superstore purchases were not included in 1988 revenues? C)BV drastically
slowed its depreciation (amortization) of “hit* video tapes at the start
of 1988. In 1987 BV depreciated its rental videotape “hits” over nine
months, straight line. At the start of 1988, it switched to a method it called “36
month accelerated. The financial statements do not disclose how accelerated
the curve is, but do say that the company uses 150% of straight line,
computed on a monthly basis. Thus, the resulting depreciation is as follows: First 12 months 40%Second 12 months 30%Third 12 months 30%4)Over what period does BV
depreciate its “base stockvideotapes?
5)What was the effect on
earnings per share of the change in depreciation method for hittapes
(assume that hittapes made up 25% of new tape purchases, and that the average
hittape was owned for half the year)? D)BV also
sells videotapes. However, most of the sales are in bulk to new franchisees,
rather than to store customers. In 1988, 68% of sales were to franchisees.6)What was the effect on
earnings per share of these sales to franchisees? E)BV charges
franchisees various fees and discloses them in a somewhat confusing manner. The
income statement shows, in revenues:Royalties and other fees $8,142,000However, Note 1 to the financial statements
lists: Royalties and other fees $7,590,000Area Development fees 550,000Initial franchise fees 2,415,000The first two items total to the income
statement amount, the third seems to be buried, inexplicably, in rental
revenues. 7)What was the effect on
1988 earnings per share, of the non-recurring items: area development feesand
initial franchise fees? 8)What would BV’s 1988
earnings per share be after all of the above adjustments? 9)Ignoring #3 above, what
would BV’s 1988 earnings per share be after the above adjustments? 10)What would BV’s Price/Earnings ratio be, given all of
the above adjustments (including #3)?
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