According to The Internal Auditor: In the past, credible financial reports could be produced, audited, and published only on n periodic basis, because the information needed to generate such reports was either impossible too costly to obtain on a real-time basis. However, a growing furrier of important items on financial statements have come under real-time management, as information technology has made such practices both economically feasible and competitively necessary for survival INSTRUCTIONS: What does it mean that information can be obtained on n real-time basis? What items on the financial statements do you think have come under real-time management, and what advantages might real-time accounting create?
> Pier 1 Imports reported cost of sales of $1.1 billion for fiscal 2019. Inventory increased during the year from $347.4 million to $347.6 million, and accounts payable (related to inventory purchases) increased from $71.3 million to $122.0 million. a. Est
> ExxonMobil, a multinational integrated oil and gas company, reported the following information in its 2019 annual report: Due to slackening global demand for crude oil, as well production disputes between two large oil-producing countries (Saudi Arabia a
> Amazon.com described its inventory policies in the 2019 annual report as follows: Inventories Inventories, consisting of products available for sale, are primarily accounted for using the first-in, first out method, and are valued at the lower of cost an
> Target Corp. is a major U.S. retailer that historically has carried inventory balances in excess of 15 percent of its total assets, and in a typical year the cost of its sold inventory approximates 70 percent of total sales. In the calculation of cash fl
> A partner from a major accounting firm made the following comment when asked about the accounting methods used by companies in the software industry: "Accounting policies that have adverse short-term effects on financial statements cannot help the indust
> Forbes noted that "Fairfield Company does set aside a reserve for bad debts, but last year it began tinkering with its provision for loan losses, reducing it from $6.5 million in one year to $5.39 million the next. It may not sound like much, but the res
> The following quote was taken from the 2019 annual report of HP, Inc. HP sells a significant portion of its products through third-party distributors and resellers and, as a result, maintains individually significant receivable balances with these partie
> A few years ago, Par Pharmaceuticals announced that it would restate financial results for the first quarter of the current year and for the past two years due to an understatement of the allowance for uncollectibles for accounts receivable. The understa
> Excerpts from the operating sections of the 2019 statement of cash flows for AT&T and Toyota are provided below. AT&T publishes U.S. GAAP-based financial statements in U.S. dollars, and Toyota publishes IFRS-based financial statements in Japanese
> Publicly traded companies release financial statements (unaudited) on a quarterly basis. For one particular quarter, MarketWatch reported that Bank of America (B of A) and Wells Fargo had improved their results over the same period in the previous year b
> Pier 1 Imports reported retail sales for fiscal 2019 of $1.6 billion. During the year, accounts receivable decreased from $22.2 million to $21.2 million. Estimate the cash collected by Pier 1 from its customers during 2019.
> The Wall Street Journal reported that an analyst with the Center for Financial Research and Analysis found an interesting item in an earnings report from New Century Financial Corporation, a mortgage lending company specializing in "subprime" loans to bo
> The footnotes to the 2019 financial statements of Citigroup, the holding company for Citibank, contained the following information (dollars in millions). "Provision for credit losses" refers to bad debt expense and "credit losses" refers to receivable wr
> You can review the Disney SEC Form 10-K by searching for "Disney Annual Report" online. INSTRUCTIONS: Review the 2019 SEC 10-K Form for Disney, and answer the following questions: a. Compute the change in Disney's current ratio and working capital from 2
> An article in Forbes noted that "accounting rules . .. can often change the way companies do business." Under the accounting rule covering receivables and payables denominated in foreign currencies, for example, "it is very important for companies to mon
> In a press release discussing third-quarter financial results, the construction management and consulting firm Hill International specifically cited an increase in bad debt expense as a drag on otherwise improved operating profits. Hill provides its serv
> Apple, Inc., reported the following in its 2019 financial statements (amounts in millions): Note 2 Restricted Cash The company's restricted cash consists primarily of cash required to be on deposit under a contract agreement with a bank to support the co
> An accounting professor at the University of California at Berkeley was once quoted in the Wall Street Journal as saying, The most important items on the financial statements are trends in inventory, accounts receivable, and order backlogs. These are the
> Billionaire investor Warren Buffett was once quoted in the Financial Post as saying, "The reaction of weak management to weak operations is often weak accounting." INSTRUCTIONS: What does he mean? Provide some examples. What are the implications for fina
> Baruch Lev, a well-respected accounting professor at New York University's Stern School of Business, has commented about the lack of relevance in today's financial statements. He notes that the 500 largest companies in the United States have market-to-bo
> In an article published in the Journal of Accountancy, James Deitrick and Walter Harrison noted that the major markets for common stocks (e.g., the New York Stock Exchange, the American Stock Exchange) have been found to be efficient. That is, "common st
> The 2019 statement of cash flows for technology company Hewlett-Packard reported a net profit of $3.2 billion and net cash provided by operating activities of $4.7 billion. Depreciation and amortization totaled $0. 7 billion. HP used the indirect form of
> Fortune ran an article on Bob Olstein, an investment analyst who was particularly bullish at the time on several well-known stocks. He said the following indicators were the keys to his success: (I) a Issues for Discussion 223 recent dramatic drop in the
> Burger chain Shake Shack announced third-quarter 2019 earnings of $10.3 million, on revenues that were over 31 percent higher than those of the same period in the prior year. Earnings per share ( +$0.26) beat the consensus analyst forecast of $0.2 1. Rev
> Morningstar, a firm that evaluates and rates mutual fund performance, published an article on its website discussing a company's book value per share (shareholders' equity/number of shares outstanding) versus its market price per share. Morningstar claim
> Financial profiles, expressing the dollar value of financial statement accounts as a percentage of total assets (for balance sheet accounts) and sales (for income statement accounts), are listed from recent financial statements for four well-known compan
> You can review the Disney SEC Form 10-K by searching for "Disney Annual Report" online. INSTRUCTIONS: a. Review the Disney 2019 SEC Form 10-K and analyze the financial statements by assessing Disney's financial performance and position. Provide support f
> South Korea- based consumer electronics giant Samsung was accused by analysts of aggressively writing off some assets in the first quarter of 2019 to minimize its profits. Korea News Plus reported that the company engaged in "big bath" accounting (taking
> The pandemic referred to as COVID-19 rocked the whole globe in the spring of 2020. For months at a time, governments issued advisories to practice social distancing by staying at home unless you were involved in an essential activity, such as shopping or
> The operating profits from 2017 to 2019 reported by each of Johnson & Johnson's primary business segments are provided below. Sales numbers for each of the segments are provided in ID5.14 ( dollars in millions). INSTRUCTIONS: a. During 2019, which of
> The following sales information concerning Johnson & Johnson's primary business segments appeared in the company's 2019 SEC Form 10-K (dollars in millions). INSTRUCTIONS: a. Which of the three primary business segments is the largest, and which of th
> Cash flow profiles over a three-year period are provided here from recent financial statements for three well-known companies: Echostar Communications, Walmart, and US Airways (now part of American Airlines). INSTRUCTIONS: Link each profile to one of the
> In the shareholders' equity section of its 2018 and 2019 balance sheets, H&R Block reported accumulated other comprehensive income balances of $(14.3) million and $(20.4) million, respectively. The 2019 income statement reported net income of $423 millio
> The following pages contain the consolidated balance sheets and statements of income and cash flows taken from the 2019 annual report of the retail powerhouse Amazon. INSTRUCTIONS: Analyze the statements by using the ROE model, and identify the factors d
> Many companies selling stock to the public for the first time-initial public offerings (IPOs)-are not yet profitable. According to a report issued by the research firm Sageworks, almost half of the companies listing IPOs are not yet profitable. Amazon is
> The business press follows the movement of stock prices very closely, especially when companies post their earnings announcements. Interestingly, there is no set pattern for how stock prices react to earnings announcements. Sometimes companies report ear
> Financial profiles, expressing the dollar value of financial statement accounts as a percentage of total assets (for balance sheet accounts) and sales (for income statement accounts), are listed from recent financial statements for four well-known compan
> The Wall Started Journal reported that analysts are worried about companies borrowing money to pay dividends and to repurchase outstanding shares of stock. Aircraft parts manufacturer TransDigm Group borrowed $360 million to pay dividends, wh
> The military’s money managers last year made almost $7 trillion in adjustments to their financial ledgers in an attempt to make them add up, the Pentagon’s inspector general said in a report released yesterday. The Pentagon could not show receipts of $2.
> Munich-based automaker BMW switched how it classified certain expenses to match what it anticipates to be the format approved by International Financial Reporting Standards (IFRS). Period, BMW classified these expenses as part of operating profit, and no
> Herbert S. Bailey, Jr., published the following poem in Publishers Weekly (Jan. 13, 1975), calling to mind Edgar Allan Poe’s famous poem The Raven . Though my bottom line is black, I am flat upon my back. My cash flows out and customers pay slow. The gro
> In “Behind the Wave of Corporate Fraud: A Change in How Auditors Work,” the Wall Street Journal detailed several of the recent accounting scandals and the techniques management used to deceive both the auditors and the investing public. The article focus
> The W.T. Grant Company was the nation’s largest retailer until it filed for bankruptcy only one year after it had reported profits of over $20 million for more than ten con6ecuiive years. Yet cash flow provided by operations had started dipping several y
> Refer to the Merck income statement presented at the very beginning of the chapter, and note that the company reported growing profits of $2.4 billion, $6.2 billion, and $9.8 billion in 2017, 2018, and 2019, respectively. Restructuring charges were signi
> In the late 1990s, the Internet explosion sent the share values of well-known Internet companies soaring. Many of these companies took advantage of the high prices by making major share issuances and using the funds as their major source of financing. Ly
> When Campbell Soup purchased the European culinary business from Unilever, the acquisition was funded with available cash and a short-term notes payable. The $920 million purchase 6. Paid suppliers $870,000 for payment of open accounts payable. 7. Sold
> You can review the Disney 2019 SEC Form 10-K by searching for “Disney Annual Report” online. INSTRUCTIONS: Review the Disney Form 10-K, and answer the following questions. a. In terms of the basic accounting equation, explain how Disney accounts for prep
> When Volkswagen AG admitted several years ago that it deceived regulators by rigging exhaust emission results, the company booked a 6.7 billion euro accrued liability to cover future cash payments related to the crisis. Provide the journal entry recorded
> When Nike completed the acquisition of 100 percent of the common shares of Umbra, it was a leading United Kingdom—based global soccer brand. The acquisition price was approximately $576 million. Umbra prepares its financial statements under IFRS, and the
> When MCI Communications Corporation (now part of Verizon Communications) purchased Satellite Business Systems (SBS) from International Business Machines Corporation (IBM), it issued common stock to IBM, valued at $376 million, and signed a note payable f
> You can review the Disney SEC Form 10-K by searching for “Disney Annual Report” online. INSTRUCTI08S: Review the 2019 SEC Form 10-K of Disney and answer the following questions: a. Briefly describe the operations of Disney and indicate whether it is a ma
> Distinguish managerial accounting from financial accounting and describe how the information provided by the two systems is used differently.
> The SEC accepts IFRS financial statements from non-U.S. companies, while requiring U.S. GAAP from U.S. companies. Comment on the difficulties faced by financial analysts who analyze financial statements to assess the financial condition and performance o
> When Anheuser-Busch Company recognized a $160 million charge on its income statement for the closure of Tampa Breweries, it consisted of a write-down of plant assets of $113.7 million, employee severance costs of $19.4 million, and other disposal costs o
> Based on a survey conducted by two accounting professors, the Wall Street Journal reported that a number of high-level corporate managers indicated that they would choose investments that would boost current net income to meet the expectations of analyst
> In a report to its clients on the implications of the Sarbanes—Oxley Act of 2002, KPMG states that the act is intended to expand corporate governance, increase public confidence in financial reporting information, and strengthen our capital market system
> The following quote was taken directly from the audit report written by PwC on the 2019 financial statements of Kroger. We have audited the accompanying consolidated balance sheets of The Kroger Co. and its subsidiaries (the “Company”) as of February 2,
> Fortune magazine ran an article titled “New Ethics or No Ethics? Questionable Behavior Is Silicon Valley’s Next Big Thing,” which recounts stories of Internet companies that aggressively inflate their net income. In many cases, the actions of these compa
> United Continental Holdings, the parent of United Airlines and Continental Airlines, signed contracts with its major creditors (mostly banks) that require the company to maintain a minimum cash balance of $3.0 billion and a minimum ratio of cash flow to
> In late 2009, General Electric, Vivendi SA, and the cable television company Comcast entered into a complicated transaction to change the ownership of the television and production company NBC Universal. Prior to the transaction, GE owned 80 percent of N
> The huff Street Journal once reported, “For as long as companies have published cash-flow statements, investors have used them to gauge the credibility of earnings. The most closely watched portion of these reports is the part called cash flow from opera
> The following information was taken from the 2019 annual report—statements of cash flows—of United Technologies Corporation (UTC), a diversified manufacturing conglomerate (dollars in millions). INSTRUCTIONS: What does
> The following information was taken from the 2019 annual reports—statements of cash flow f TJ Maxx, Pier One, and Pepsico (dollars in millions). INSTRUCTIONS: Each of these companies shows a different cash flow pattern. Explain what the
> The following excerpt was taken from a financial report of Cummins Engine Company, a manufacturer of heavy-duty truck engines. Loan agreements contain covenants that impose restrictions on the payment of dividends and distributions of stock, require main
> On its 2019 income statement, AT&T reports a 7.2 percent increase in revenue from $152 billion in 2018 to $163 billion in 2019. Yet net income dropped by 28 percent from $19.4 billion to $13.9 billion. Interestingly, a line item on the statement entitled
> Recently, Netflix released its earnings for the first quarter of the year. In the announcement the company highlighted a number of its accomplishments, including: • Surpassing 100 million subscribers using online streaming services • Strong interest in t
> For over a year, Center Energy Corporation, a utility company in Ohio, had negative cash flow from operating activities, caused primarily by the escalating costs of one of its nuclear plants outside Cleveland. Yet the company reported positive earnings a
> Whitney Tilson, a noted analyst, warns investors in an article in The Motley Fool that more than any other type of company, financial companies have immense discretion regarding what earnings to report. The key is the rate of loan losses that they exp
> The annual Form 20-F published by Unilever, which uses IFRS, notes that during a particular year assets were written down by 246 million euros to market value for damaged, obsolete, and lost inventories. It also noted that the market value of certain inv
> The Wall/ Street Journal reported in early 2010 that Citi Bank had acknowledged a series of errors in accounting for the investment in the firm by the U.S. government. These errors overstated the company’s quarterly earnings in 2008 rind 2009, rind were
> Much has been written about the accounting fraud and subsequent bankruptcy of WorldCom. The Baltimore Run reported that the ”fraud was brazen (and) easy to spot. The scheme was not complicated: the company’s financial officers recorded routine maintenanc
> General Electric (GE) depreciates its fixed assets using a method that recognizes a relatively large portion of depreciation in the early years of an asset’s useful life. IBM, on the other hand, uses the straight-line method. INSTRUCTIONS: Briefly descri
> MarketWatch and the news organization Reuters posted the following announcement. Excluding One-Time Expenses. Johnson & Johnson Beats Estimates Johnson & Johnson released its fourth quarter 2006 earnings ... announcing that net income rose to $2.17 billi
> Celadon Trucking filed for bankruptcy in December 2019 due to an inability to cover its debt payments. As part of its agreement to borrow money from lenders, the company has debt restrictions that require it to maintain minimum values of certain financia
> Travel booking websites (like Expedia, Travelocity, and Priceline) make their money by charging a customer an amount (say. $1 ,000) that is larger than the amount they pay the airline or hotel that provides the actual service to the customer (say, $900).
> Merck & Co. declared dividends (dollars in millions) of $5,820 (2019), $5,3 13 (2018), and $5,177 (2017). Cash payments for dividends reported on the statement of cash flows for the three years were $5,695 (2019), $5,172 (2018), and $5,167 (2017). Divide
> Most airlines offer promotional programs in which passengers accumulate miles over time; when they have earned enough miles, they receive free tickets. In the past, airlines did not make any accounting entries for these free tickets. The free rider merel
> You can review the Disney SEC Form 10-K by searching for “Disney Annual Report” online. This chapter listed and defined ten concepts, separated into four basic assumptions, four principles of measurement, and two exceptions. INSTRUCTIONS: Review the Disn
> The FASB requires that companies report the fair value (i.e., net realizable value) of their equity and debt securities on the balance sheets. The FASB described fair value as a market exit price—an estimate of the price an entity would have realized if
> The annual report of KeyCorp, a regional bank holding company headquartered in Cleveland, indicates that short-term investments are listed on the balance sheet at net realizable value. In addition to its short-term investments, Key notes that it also has
> Enron was one of the world’s largest power companies before it went bankrupt in one of the most spectacular financial ligands in history. One aspect of the fraud involved the creation of a separate entity that borrowed a large amount of money and then us
> You can review the Disney SEC Form 10-K by searching for “Disney Annual Report” online. INSTRUCTIONS: Review the Disney 2019 Form 10-K and complete the following: a. Compute net income as a percent of revenues for 2019, 2018, and 2017. b. Compute current
> Up until 2007, non-U.S. firms that published IFRS-based financial statements and wished to raise capital on the U.S. stock markets (e.g., New York Stock Exchange) were required to file with the SEC a Form 20-F that included reconciliations of both net in
> Compute the present value of the payment patterns provided below, given an 8 percent discount rate. a. $50 at the end of Year 2; $100 at the end of Year 5; $80 at the end of Year 8. b. $100 at the end of Years 1, 2, 3, 4; $100 at the end of Year 8. c. $6
> Compute the present value of $10,000 received at the beginning of each year over the following time periods at the following discount rates. Complete the following table:
> Compute the present value of $10,000 received at the end of each year over the following time periods at the following discount rates. Complete the following table:
> The following information was taken from the 2019 annual report of Coca-Cola ( dollar and share amounts in millions): a. At what average price did the company repurchase its shares in 2017? b. At what average price did the company repurchase its shares i
> You are investment analyst for Timken Brothers, a small brokerage firm.
> If $150 were invested at the beginning of each year over the following time periods at the following interest rates, how large a sum could be withdrawn at the end of the final time period? Complete the following table:
> If $150 were invested at the end of each year over the following time periods at the following interest rates, how large a sum could be withdrawn at the end of the final time period? Complete the following table:
> Compute the present value of $10,000 received at the end of the following time periods at the following discount rates. Complete the following table:
> If $150 were invested today, how large a sum could be withdrawn at the end of the following time periods at the following compound interest rates? Complete the following table:
> BC Inc. began operations in early 2018. Summaries of the statements of cash flows for 2020, 2019, and 2018 follow: a. Compute the missing dollar amounts, and briefly comment on the company's cash management policies during the three-year period. b. Does
> Assume that the following financial ratios are calculated for Royals Corporation in 2020: a. What was the return on equity for Royals Corporation in 2020? b. If Royals Corporation keeps all of its other ratios constant in 2021 but increases its capital s
> The following ratios were computed from the financial statements of LBS Products: Use the ROE model to analyze these ratios, and comment on the company's performance from 2018 to 2020.
> The following ratios were computed from the financial statements of INSEAD Incorporated: Use the ROE model to analyze these ratios, and comment on the company's performance from 2018 to 2020.
> Merck, a major pharmaceutical, generated $9.78 billion in net income for the year ended December 31, 2019. 1. The company paid $5.82 billion in dividends during 2019. 2. Merck stock was selling for $73.59 per share on January l , 2019, and for $90.95 per
> The following information refers to the financial records of McDonald's Corporation over a three-year period (dollar amounts in millions except share price). a. Compute dividends declared as a percentage of net income during each of the three years. b. C
> When Radio Shack announced a 2: 1 stock split, the company had 97 million shares outstanding, trading at $100 per share. a. Estimate the number of shares outstanding and market price per share immediately after the split. b. Estimate the company's overal
> At the end of 2020, Montvale Associates borrowed $120,000 from the Bay liner Bank. The debt covenant specified that Montvale's debt/equity ratio could not exceed 1.5: I during the period of the loan. A summary of Montvale's balance sheet after the loan f
