Despite Disturbing Discoveries During Due Diligence, Mattel Acquired the Learning

question 131

Essay

Despite disturbing discoveries during due diligence, Mattel acquired The Learning Company (TLC), a leading
developer of software for toys, in a stock-for-stock transaction valued at $3.5 billion on May 13, 1999. Mattel had determined that TLC's receivables were overstated because product returns from distributors were not deducted from receivables and its allowance for bad debt was inadequate. A $50 million licensing deal also had been prematurely put on the balance sheet. Finally, TLC's brands were becoming outdated. TLC had substantially exaggerated the amount of money put into research and development for new software products. Nevertheless, driven by the appeal of rapidly becoming a big player in the children's software market, Mattel closed on the transaction aware that TLC's cash flows were overstated. Despite being aware of extensive problems, Mattel proceeded to acquire The Learning Company. Why? What could Mattel to better protect its interests? Be specific.

Distinguish between transactions that affect Assets, Liabilities, and Owner's Equity.

Apply the accounting equation to analyze transaction effects on the balance sheet items.

Understand the concept of accounting for receivables and payables in business operations.

Comprehend the impact of cash transactions on the financial statements.

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Definitions:

Coal And Gas Plants

Facilities where electricity is generated by burning coal or natural gas, playing a significant role in the energy sector despite environmental concerns.

Renewable Energy Sources

Forms of energy that are replenished naturally and can be used repeatedly, such as solar, wind, hydroelectric, and geothermal energy.

U.S. Electricity

The network of power generation, transmission, and distribution systems serving as the energy provider for consumers in the United States.

Total Cost

The sum of fixed cost and variable cost.