Question: The following excerpts were taken from the
The following excerpts were taken from the annual reports of a variety of companies: 1. The company’s reporting period ends on the Saturday closest to January 31 (The Limited). 2. The consolidated financial statements include the accounts of Federal Express and its wholly owned subsidiaries (Federal Express). Inventories are valued primarily at the lower of cost or market value (JCPenney). 4. Certain reclassifications have been made for prior years to conform with this year’s presentation (Wendy’s International). 5. Revenues from the distribution of motion pictures are recognised when motion pictures are exhibited (Walt Disney). 5. In an ongoing investigation, the Antitrust Division of the U.S. Department of Justice requested information from Microsoft concerning various issues. Management currently believes that resolving these matters will not have a materially adverse impact on the company’s financial position or operations (Microsoft). 7. Flight equipment is depreciated on a straight-line basis over a 20-year useful life (Delta Air Lines). 8. Intangible assets are carried on the balance sheet at cost (Merck). 9. Property and equipment are recorded at cost (Apple Inc.). 10. Inflation rotes, even though moderate in many parts of the world, continue to have an effect on world- wide economies but have had no effect on the company’s reported financial position and performance (Johnson & Johnson). Match each of the ten assumptions, principles, and exceptions below with one of the ten excerpts. Some items may be used more than once or not at all. 
> An article in Business Week described how Bob Olstein, a successful stock analyst, predicts that the prices of stocks issued by firms that "engage in aggressive accounting practices" will go down, stating that other "investors have unrealistic expectatio
> When luxury automaker BMW recently released earnings, the Wall Street Journal reported that it compared poorly to the prior year for a number of reasons, including the following: • rising raw material costs • strength of the euro • a large gain booked du
> Indicate how the income effects of the following items would be disclosed on the income statement and whether they represent a wealth change and/or can be expected to persist in the future: a. Federal Express reported $17 million on operating gains from
> General Electric's 2019 annual report, which included a statement of comprehensive income, contained the following items (dollars in millions): INSTRUCTIONS: a. From top to bottom, list each item as it would be disclosed on the income statement and state
> Eastman Kodak once recorded a third-quarter net loss of $206 million, but at the same time, posted a 22 percent rise in operating earnings to $835 million. Much of the loss was due to a $909.5 million charge taken to cover the costs associated with a wel
> Excerpts from the annual report of AT&T, Inc., are as follows. Compute the missing values and briefly discuss AT&€™s sources and uses of cash during the three-year period.
> Many e-tailers (retailers via the Internet) were not profitable in their early years. Analysts who believed in the futures of these firms, therefore, were forced to focus on other positive metrics of performance, such as revenues and gross profit margins
> In a particular year, PepsiCo's earnings either rose or fell, depending on the source of the information. Standard & Poor's reported that PepsiCo experienced a 25 percent earnings gain, while Value Line, another investor service, reported that PepsiCo ex
> Weyerhaeuser Company is engaged principally in the growing and harvesting of timber and the manufacture, distribution, and sale of forest products. When Mount St. Helens, a volcano located in Washington State, erupted, 68,000 acres of the company's stand
> Ratings agencies such as Moody's and Standard & Poor's rate securities to give investors an independent grading of the risks involved in financial transactions. A few years ago, both Moody's and S&P reported large increases in profits due to the increase
> You can review the Disney SEC Form 10-K by searching for "Disney Annual Report" online. INSTRUCTIONS: Review the 2019 Disney SEC Form 10-K, and answer the following questions: a. Describe how non-operating items affected Disney's reported net income ove
> Carrefour, a French retailer, publishes financial statements under IFRS, denominated in euros. Toyota, the Japanese automobile producer, publishes financial statements under U.S. GAAP, denominated in yen. Excerpts taken directly from their 2019 income st
> The components of 2019 comprehensive income for CVS Health and for Walgreens Boots Alliance, competing drugstore chains, are outlined as follows (dollars in millions): INSTRUCTIONS: a. Compute comprehensive income for the two companies. b. Would your con
> The Wall Street Journal reported that shareholders of Kraft Foods, now part of KraftHeinz, "can afford to give management more time to improve its brands, sales margins, and earnings" because of the dividends paid by the company and the share buyback pro
> For 20 years, Westinghouse Electric Corp. used PCBs in the manufacture of electrical capacitors at its plant in Bloomington, Indiana. A federal consent decree ordered the company to be prepared to build an incinerator in the future to destroy the PCB-con
> Preferred stock is often seen as a hybrid security, as it has characteristics of both debt and equity. The Wall Street Journal once reported two new securities used by companies going public: income deposit securities and enhanced income securities, both
> In BE2—2, Caterpillar’s current assures consisted primarily of cash and short-term investments of $8.3 billion, accounts receivable of $17.9 billion, inventory of $11.1 billion, and miscellaneous current assets of $1.7 billion. a. Does the company appear
> In an article entitled "Buybacks or Giveaways," CFO.com reported that "large repurchase programs require a whole lot of capital. Critics of buybacks contend that companies can put their cash to better use. They also point out that investors are more like
> The Wall Street Journal once reported, "Philip Morris Cos., in an aggressive move to boost its stock price, announced a $6 billion stock buyback plan and raised its quarterly dividend nearly 20% ... . The announcement, which came after a regularly schedu
> When companies cut dividends, it is usually a bad sign for the stock. But apparently not at Monsanto, maker of Roundup and now part of Bayer's farm science division. Several years ago, the company cut its dividend and the stock price went up. INSTRUCTION
> When Hershey Foods declared a 100 percent stock dividend, 149.5 million of its shares were outstanding. Assume that the stock dividend was declared and paid on the same day. INSTRUCTIONS: a. How many shares of stock were outstanding after the dividend? b
> The following information was taken from the 2019 statement of shareholders' equity for Microsoft ( dollars in billions). INSTRUCTIONS: a. Explain the nature of stock-based compensation expense. b. Why would it appear on the statement of shareholders' eq
> You can review the Disney SEC Form 10-K by searching for "Disney Annual Report" online. INSTRUCTIONS: Review the Disney 10-K, and answer the following questions: a. What percentage of Disney's total assets were provided by liabilities, contributed capita
> Unilever Group, a Dutch-based consumer-goods company that publishes IFRS-based financial statements, reported a net profit on its 2019 income statement of 6.0 billion euros. That same year, the company reported comprehensive income of 6.6 billion euros.
> Each year since 2014, Home Depot has purchased at least $7 billion of its own outstanding common stock , averaging over $8 billion per year, recording it all as treasury stock. The accumulated total of its treasury share holdings has grown to over $65 bi
> Refer to the statement of shareholders' equity reported by Emerson Electronics given in Figure 12-11. INSTRUCTIONS: Describe Emerson's dividend and treasury stock transactions and policies over the three-year period 2017- 2019. Consolidated Statements of
> When Walt Disney Co. declared a 4:1 split of its common stock, the announcement boosted the entertainment company's shares up by $3.50 per share. INSTRUCTIONS: a. What is a 4: 1 stock split, and how did it affect the financial statements of Walt Disney C
> A summary of a recent balance sheet for Caterpillar is as follows (dollars in billions): What amount and what percentage of Caterpillar’s assets were financed by (1) current liabilities, (2) long- term debt, and (3) shareholders&acir
> Bloomberg News Service reported that Rhodia, SA, France's largest specialty chemicals company, announced plans to sell 450 million euros in shares, in addition to a 600 million euro bond issue, to raise cash to prevent a liquidity crisis. Rhodia had post
> Prior to a recent buyout offer, the stock in Dow Jones & Co. Inc. (the publisher of the Wall Street Journal) had a book value (shareholders' equity per share) of approximately $6. The stock had been trading (market value) for $36 per share. Rupert Murdoc
> During the 2008-2009 financial crisis, the stock market plummeted, and many companies tried to take advantage of the depressed prices by buying back large amounts of their own stock. Amazon, for example, authorized a $2 billion stock buyback and borrowed
> The Wall Street Journal reported that many companies take advantage of the depressed market values of their own debt, and buy their own bonds at steep discounts below the debt's face value. Beazer Homes, Harrah's Entertainment, and Tenet Healthcare provi
> The following information was taken from the footnotes of Target's 2020 financial statements. It lists the contractual cash payments Target expects to make on its leases. INSTRUCTIONS: a. What percent of the total expected lease payments is associated wi
> The following excerpt was taken from a recent annual report of JCPenney: The ... Credit Agreement includes a requirement that the Company maintain, as of the last day of each fiscal quarter, a Leverage Ratio (a ratio of Funded Indebtedness to Consolidate
> As the United States slid deeper into a recession, companies with high amounts of cash relative to their debt were coveted by the stock market, while companies with high levels of debt slashed dividends, payrolls, and capital expenditures to stay afloat.
> The Wall Street Journal reported that on a particularly strong day in the stock market, the prices of long-term bonds issued by companies such as Apple, Merck, Microsoft, and McDonald's all dropped significantly. "High-rated, low-yielding debt of househo
> The following information was taken from the footnotes to Target's 2020 financial statements (dollars in millions): As of February 1, 2020, the carrying value and maturities of our debt portfolio were as follows: INSTRUCTIONS: a. Which amount appears in
> Revenues and expenses for PepsiCo during 2019 were $67.2 billion and $59.9 billion, respectively. The December 31, 2018 and 2019, balances in retained earnings were $59.9 billion and $61.9 billion, respectively. Compute dividends paid by PepsiCo during 2
> Assume that Southwest Airlines is planning to purchase a jet passenger plane with a price of $45,636,480 from The Boeing Company. Southwest is considering structuring the transaction in one of two ways. In Alternative 1, Southwest would borrow the necess
> JCPenney Company once issued bonds for 33.24 (percent of face value), with a face value of $200 million and a stated interest rate of zero, which matured eight years later. That same year, Martin Marietta, Northwest Industries, and Alcoa also issued bond
> You can review the Disney SEC Form 10-K by searching for "Disney Annual Report" online. INSTRUCTIONS: Review the Disney 2019 SEC Form 10-K, and answer the following questions: a. Compute Disney's long-term debt to total asset ratio for 20 19 and 2018. (I
> Sunoco Oil Company purchased all of its outstanding 8.5 percent (stated rate) debentures as part of a restructuring plan. The balance sheet value of each outstanding debenture at the time of the repurchase was $875, and the company paid $957.50 for each
> The SEC requires additional information in the proxy statements that describe the compensation packages of a company's top executives. A Wall Street Journal article published soon after the requirement became effective offered a list of recommendations a
> Abbott Laboratories, a major pharmaceutical company, reported the following current liabilities in its 2019 and 2018 annual reports (dollars in millions): INSTRUCTIONS: a. Briefly describe the transaction or event underlying each of the liabilities liste
> Agilent Technologies Inc., a diversified technology company, sells extended warranties for the products and services provided to customers, deferring the revenue until future recognition. The following information about the extended warranty liability ac
> The following quote refers to the problems of Campeau Corporation, a Canadian-based retail empire that later was dissolved through bankruptcy. At the time of the quote, Campeau's department store chains included many of the top upscale retailers in the i
> Lifschultz Fast Freight, which collapsed a few years ago when its owner died, once reported a book value of less than zero (i.e., reported liabilities exceeded reported assets). Yet the company's share price skyrocketed on news that it was pursuing a ma
> Several years ago in its annual report, Philip Morris Companies, a major manufacturer of tobacco and food products, included footnote 16, which was almost five pages long. It consisted of a number of separate sections covering such topics as an overview
> The 2019 annual report for HCA Inc., a nationwide chain of hospitals, contains the following statement in the footnotes to the financial statements: Reserves for professional liability risks were $ 1.827 billion and $1.741 billion at December 31, 2019 an
> United Airlines Holdings discloses two accounts on its financial statements entitled "Advanced ticket sales" and "Frequent flyer deferred revenue" with 2019 balances of $4.8 billion and $2.4 billion, respectively. INSTRUCTIONS: a. On what financial state
> You can review the Disney SEC Form 10-K by searching for "Disney Annual Report" online, and answer the following questions: a. What is working capital, and what is the trend in Disney's working capital position in recent years? b. How much did working ca
> The 2019 IFRS-based balance sheet published by Volkswagen AG, the well-known German automaker, listed an account called "provisions" (divided into current and noncurrent categories) with a total balance (in million euros) of 46,217 (2019) and 44,754 (201
> The Internet phone company Vonage Holdings faced two separate patent infringement lawsuits initiated by Verizon and Sprint Nextel due to the technology used to provide Web-based communication services for its customers. The threat to Vonage's viability w
> General Motors once posted net income of $552 million, compared with a loss of $112.9 million a year earlier. Over $200 million of the profit was due to an accounting adjustment in its North American operations because its marginal tax rates turned out t
> The following information was taken from the 2019 annual report of Emerson, a leader in process management, technology, network power, and industrial automation (dollars in millions): INSTRUCTIONS: Comment on whether Emerson's financial accounting method
> A major defense contractor, LTV, faced with huge liabilities, once declared Chapter 11 bankruptcy protection. Under Chapter 11, a company continues to operate but is protected from creditors while it tries to work out a reorganization plan. At that time,
> FedEx Corporation, a world leader in express mail services, reported the following in its May 31, 2019, financial statements (dollars in millions): The company's long-term debt contains restrictive covenants that require the maintenance of certain financ
> A few years ago, Kellogg, a maker of cereals and foods, hit its targeted earnings-per-share growth of 11 percent, and its stock price was up 25 percent. In the fourth quarter of that year, the company took a significant "one-time" charge against earnings
> The statement of cash flow for Facebook contained the following numbers ( dollars in millions): a. Explain how profit could decrease while cash from operations increased over the same time period. b. Analyze Facebook's cash management activities in 2018
> Tracy Sellers, a retired musical artist, and his two brothers own a substantial amount of outstanding common stock of Avery Corporation, a young and fast-growing manufacturer of cartons, containers, and a wide variety of packaging materials. The company&
> U.S. accounting standards at one time contained a requirement that certain large companies disclose current fair market values for inventories and property, plant, and equipment assets. Such disclosure included dollar amounts for cost of goods sold and d
> After being asked how General Electric has maintained such consistent earnings growth over the past decade, Dennis Dammerman, the company's chief financial officer, said, "We're the best company in the world." However, the Wall Street Journal offered ano
> The footnotes to the 2019 financial statements of McDonald's Corporation contain the following statement: Long-lived assets are reviewed for impairment annually ... and ... if an individual restaurant is determined to be impaired, the loss is measured by
> The Wall Street Journal once reported that hospitals plan to boost the amount of money spent on new property, plant, and equipment to meet increased demand from the aging demographics of the United States. The article stated that the increased capital sp
> The 2019 annual report of Cisco Systems discloses that the company expenses all advertising and research and development costs, while capitalizing all software development costs. INSTRUCTIONS: Describe the effect of these two accounting treatments on the
> Steel manufacturer V &M Star announced in early 20 IO that it would spend $650 million to expand its Youngstown, Ohio, plant. The company indicated that funding from the federal government's stimulus bill, passed in response to the 2008-2009 recession, p
> You can review the Disney SEC Form 10-K by searching for "Disney Annual Report" online. INSTRUCTIONS: Review the 2019 (9/28/2019) Disney SEC Form 10-K, and answer the following questions: a. What percentage of total assets do property, plant, and equipme
> When Burlington Northern released first-quarter earnings below those of the same period for the prior year, management explained the reasons behind the shortfall. While revenues increased, mainly due to higher prices, earnings were down due to increased
> Seattle Film Works capitalizes the costs of its direct mailings to prospective customers, expensing them over three years rather than in the year they're incurred. There's nothing wrong with this practice per se. If the customers gained by these mailings
> The following information was taken from the 2019 statements of cash flow for Agilent Technologies and Advanced Micro Devices (dollars in millions): a. Compute the change in cash for both companies. b. Describe the cash management profile for each compan
> Grocery giant Kroger discloses inventory in the following manner on the balance sheet itself (dollars in millions). Rival grocer Albertsons' s, on the other hand, disclosed information about its LIFO and FIFO values in a footnote to its 2019 financial st
> The 2019 statement of cash flows for Macy's reports (dollars in millions) net cash from operating activities of $1,735 (2019), $1,976 (2018), and $1,801 (2017). Included on the statement of cash flows (indirect method) in the computation of net cash from
> When it released its first-quarter earnings, FedEx Corporation also projected that its shipping volume would be lighter and that its profit growth would be the lowest in years. As reported in the Wall Street Journal, FedEx cited the fact that many compan
> The 2019 annual report of Sherwin Williams, a manufacturer of paint products, contained the following footnote (dollars in millions): Note 5-/inventories Inventories were stated at the lower of cost or net realizable value with cost primarily determined
> When the Wall Street Journal reported that "Chevron Corporation took a charge of $1.96 billion", it noted that the charge was related to lower prices for crude oil and refined products. The article explained that the write down served "to reduce the carr
> TII Industries makes over-voltage protectors, power systems, and electronic products primarily for use in the communications industry. Several years ago, the company reported that it took "a substantial inventory write-down," resulting in a loss for its
> In the early 1980s, an oil glut caused Texaco, a LIFO user, to delay drilling, which cut its oil inventory levels by 16 percent. The LIFO cushion (i.e., the difference between LIFO and FIFO inventory values) that was built into those barrels over the yea
> Harley-Davidson manufactures motorcycles and accessories. Financial information from the 2019 annual report is excerpted as follows: Balance Sheet Information: Inventories, net (in thousands): Inventory obsolescence reserves deducted from FIFO cost were
> You can review the Disney SEC Form 10-K by searching for "Disney Annual Report" online. Review it and answer the following questions: INSTRUCTIONS: a. How large is inventory compared to the other assets on Disney's balance sheet? Did inventory increase,
> The Japanese firm Sony prepares its financial statements using U.S. GAAP. Two items related to its inventory appeared in the operating section of a recent statement of cash flows, both in millions of yen: loss on impairment of assets (38,308) and change
> 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
