Accounting Problems -10 Questions!

1) What is Blockbuster’s amortization timetable? Do you think it is appropriate?

2) What would be the impact on Blockbuster’s 1988 earnings per share if 5 year amortization

were applied to this goodwill?

3) What would have been the effect on earnings per share if Video Superstore purchases were

not included in 1988 revenues?

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)?

6) What was the effect on earnings per share of these sales to franchisees?

7) What was the effect on 1988 earnings per share, of the non-recurring items: area development

fees and 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)?