Bear & Co Essay

3968 Words Aug 17th, 2015 16 Pages
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Essay Sample: Page 2
B) On April 20, Blockbuster announced an agreement to merge with its largest franchisee, Video

Superstore. Video Superstore was Blockbuster's largest customer for videotapes, accounting for 10%

of such sales in 1988, 21% in 1987, and 48% in 1986.

Since intra-company transactions are eliminated from the financial statements (it doesn't make sense

to record sales to yourself!), these sales will disappear next year.

3) 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 stock” videotapes?

5) What was the effect on earnings per share of the change in depreciation method for “hit” tapes

(assume that hit tapes made up 25% of new tape purchases, and that the average hit tape

was owned for half the year)?

D) BV also sells
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