I’m not understand what is the answer… The question is “Which factor stated in the first quote of the MD&A will Nhyberg LEAST LIKELY use to adjust Sweet Home’s debt?” The answer is – advances from customers are intially reported as liabilities and will be included in Sweet Home’s debt. Hmm…well then that leaves me with 3 answer choices that is least likely? Did they mean “will NOT” be included in Sweet Home’s debt?? Confused.
I agree! That was totally f’ed up, and I still don’t understand. But I have gone back to the CFAI text and I found out that guarantees are treated as debt, and the other two are definately treated as debt, so the answer should def be the advances from customers, but the explanation is NOT GOOD
Ok so I am right…whew. People confirm if you believe so too. I think the correct answer should be determined by majority rules
Kelly, In the CFA book Westco case, it clearly says customer advance is a deferred income not debt. I am confused
the question asked what is included in debt - or in other words what is excluded from debt… all of you are right. guarantees are debt, and advances from customers are not deferred income.
guys…I think you’re reading into this differently… The question asks which factor stated in the first quote of the MD&A will Nyberg least likely use to ADJUST Sweet Home’s debt… the four items listed are: 1. non consolidated subsidiaries 2. sold receivables with partial recourse 3. advance payment from large customers 4. entered into operating leases for new stores… now…1, 2, and 4 are NOT currently being reported as debt, whereas 3 is. Advance from customers is treated as a short term liability - till the actual revenue is received…since it is ALREADY included as part of the company’s debt it will be LEAST LIKELY used to ADJUST the debt… the other three items are NOT currently in the debt strcuture - but the analyst WILL use them to ADJUST debt… hence least likely to use to adjust debt - 3 - advance payment from large customers…
From the pdf explanation, I think they mean “Advanced from customer” is already on the balance sheet, so least likely required adjustment.
I can’t believe we’re required to know the fact: “Advanced from customer normally recognized on b/s already”.