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1. Using only the information presented on the Con...




1. Using only the information presented on the Consolidated Balance Sheets and Consolidated Statements of Operation, answer the following questions: a. Assume that all sales (use ?Net Sales?) are made on account. Were there more credit sales or cash collections of credit sales during 2010? b. Assume that all inventory purchases?which you must calculate?are made on account, and further assume that inventory is the only transaction which pays for on credit. Was there a greater amount of purchases or cash payments made on account during 2010? Requirement 1: Create two T-Accounts?one for Accounts Receivable (A/R) and another for Accounts Payable (A/P)?to calculate your answers. For the purposes of this question, assume that the balance sheet amount for ?Accounts receivable, net and other? is the actual balance of Accounts Receivable at the end of each year. 2. Refer to information in Note 1?Description of Business and Accounting Policies in the Notes to the Consolidated Financial Statements related to Accounts Receivable. a. Does account for the possibility that some customers or vendors may not fully pay for previous purchases on credit? If so, how? If not, why not? b. Assume that all receivables are ?Accounts Receivable? (i.e., there are no ?other? or ?vendor? receivables). How is the amount reported on the balance sheet different from the ending balance of ?Accounts Receivable? in a given year (Hint: there is a keyword that should tip you off)? Calculate the actual ending balance of ?Accounts Receivable? in 2010 and 2009. c. Suppose that in 2011, receives cash payments for customer purchases made on account in prior periods totaling $1,600 million. Evaluate how well the managers of accounted for the possibility that some customers may not fully pay for purchases made on credit. That is, did the managers of overestimate or underestimate how much they would actually receive from customers and vendors for previous purchases on account? Requirement 2: Briefly answer each question with no more than 2-3 sentences each. If necessary, you may use appropriate T-accounts (e.g., Accounts Receivable) to help explain your responses. 3. Refer to information in Note 1?Description of Business and Accounting Policies and Note 3?Fixed Assets in the Notes to the Consolidated Financial Statements. a. What method of depreciation does use, and why isn?t ?Depreciation Expense? on the income statement? b. Note that each class of assets has a separate ?Accumulated Depreciation? contra-asset account. Further assume that Depreciation Expense related to the ?Technology and Infrastructure? class of assets for 2010 is $292 million. What other transaction related to this class of assets must have happened in 2008? Requirement 3: Briefly answer questions (a) and (b) above. In addition, draw a T-account (you will need to determine which account to analyze in order to answer the above question!) to support your response to question (b), highlighting the amount of the additional transaction. 4. Refer to the summarization of the legal proceedings in Note 6?Commitments and Contingencies. a. Why is it necessary to disclose this information in the footnotes? b. In most cases, there are no specifications regarding how an individual lawsuit against may have a monetary impact in the future, but the suits are discussed at length. Therefore, what is the relative likelihood that these cases will result in a ruling that is unfavorable for c. Suppose that one lawsuit filed against was settled on November 13, 2010 (the first cash payment is made some time during 2011). was compelled to pay the claimant for infringement damages of $600 million in equal installments over the next three years. How should account for this outcome? How could this impact the financial position of Requirement 4: Briefly answer questions (a) and (b). Recall that there are specific criteria relating to disclosing contingent liabilities. For question (c), specify how this scenario would impact the 2010 Statement of Operations. In addition, how would this outcome change the 2010 Balance Sheet? What amounts would be added to which section the balance sheet, and how would they be classified? Finally, how would this event alter the liquidity of (you do not need to show calculations?just explain)? 5. Refer to the Consolidated Balance Sheet and Note 1?Description of Business and Accounting Policies as they relate to investment activities. The notes clearly specify how accounts for various investing activities. a. On the Balance Sheet, which line items include Short-term investments? Which line item includes Equity-method investments? b. Assume that ?Marketable Securities? on the balance sheet contain investments that are accounted for as trading securities. The ending balance in 2009 is $2,922 million. Suppose that during 2009, sells off $1,000 million of these investments, and purchases additional investments at a cost of $1,218. What other transaction or adjustment should have occurred to arrive at the ending balance of $4,985 million? Requirement 5: Answer question (a) briefly. For question (b), create a T-Account for the marketable securities. Clearly label the beginning and ending balances and the effects of transactions during 2010 on this account. 6. Refer to the Consolidated Balance Sheet and Consolidated Statement of Cash Flows for 2010. Note that no shares of preferred stock have been issued. a. Suppose that during 2010, Board of Directors decided to issue preferred stock (100 million shares of $100 par, $7 preferred stock) in 2011 to raise additional capital. What impact would this have on the 2011 Statement of Cash Flows? b. Given the company?s debt position, not including the cash received from issuance of the preferred stock, would this be a sound business decision for managers? Requirement 6: For questions in part (a), calculate the amount of the preferred stock dividend; how would this impact Cash Flows Provided (Used) by Operating, Investing, and/or Financing activities? For question (b), compute the company?s liquidity using the Quick Ratio as of the end of 2010. Given this ratio, would issuing the preferred stock be a good decision? 7. Refer to the Consolidated Statements of Operations for 2008, 2009, and 2010. a. In Microsoft Excel or a similar program, replicate the following line items: Net Sales, Gross Profit, Income from Operations, and Net Income for all three years, but add an additional column after each year. In the additional column, perform a vertical analysis of these income line items of In 2010, what percent of revenue is retained by after (i) reselling its products; (ii) accounting for necessary and ongoing business activities; and (iii) after all business activities? How do the results of operations in 2010?that is, these various income line items?compare to the operations of previous years? b. Assume Wal-Mart, Inc., a competitor of, reports the following results of operations. How do the two companies compare? Requirement 7: For (a), first present your replication and vertical analysis of, Inc. for all three years. In one sentence, indicate the percent of revenue retained for each of the three income specifications for 2008. In 1-2 additional sentences, explain whether operations have significantly changed over the three years. For requirement (b), prepare a Common Size comparison of and Wal-Mart. Explain some possible causes of the differences in Gross Profit and Net Income. 8. Refer to the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements. Requirement 8: Refer to the list of qualitative/enhancing characteristics and underlying principles of accounting below (right-hand column). For each, identify one item contained within the Consolidated Financial Statements or Notes to the Consolidated Financial Statements of that follows these characteristics or principles. These items may include: (a) specific account names; (b) accounting treatments; (c) specific notes; or (d) parts of the financial statements themselves, such as the format, heading, etc. For example, Accounts Receivable follows the Revenue principle because recognizes revenue when it is earned, not necessarily when Cash is received (you may not use this example as one of your answers). Accounting Information Characteristics/Principles Followed 1 Reliability 2 Relevance 3 Time Period Concept 4 Consistency 5 Matching Principle 6 Revenue Principle 7 Conservatism Principle 8 Full Disclosure Principle,Hope this is a better copy,This is a proper copy of the instructions


Paper#1032 | Written in 18-Jul-2015

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