1. What effect did the TDC and Crescendo arrangements have on ALZA’s R&D reported on the income statement? What were the balance sheet effects?
Yes, TDC’s arrangement had boost the revenue of ALZA’s R&D income statement. ALZA received $275.1 million throughout the 5 years by creating TDC as their R&D company. Other than that, even ALZA had paid $250 million for TDC as capital but all the expenses are deducted from this amount, and yet ALZA able to receive TDC’s Class A Common Stock for zero investment and received $275.1 million during this period. It increases the earnings of ALZA and the additional investment for ALZA company. Besides, ALZA did not include assets, liabilities, equity, revenue or expenses accounts of TDC, but it includes the revenues received by TDC, thus the additional revenue increases the income of ALZA and leads to a better financial position.
Crescendo’s arrangement also increases the profit of ALZA as it also received $283.5 million from Crescendo just like TDC’s arrangement. Again, as TDC’s arrangement, it also able to get Crescendo’s stock. Other than that, Crescendo did not clearly disclose their financial information. As stated in the paragraph, $3.9 million is unable to clearly identify which account to debit. Even though it indicate that $8 million is distribute to debenture holders, but the remaining $3.1 million is unknown. Besides, like TDC’s arrangement, it did not include assets, liabilities, equity, revenue or expenses accounts of Crescendo, with the additional income from Crescendo, it had improve ALZA financial position as other items did not change while the retained earnings increases.
2. Do you agree with the claim in ALZA’s financial reports that the impact on net income of the TDC and Crescendo arrangements was not significant? Why or why not?
No, the amount is significant. This is because the net income of ALZA is clearly affected by the amount paid by TDC and Crescendo, and the figures are not small, there are...