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Acct 504 mart perfect education acct504mart.com

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FOR MORE CLASSES VISIT
www.acct504mart.com
Week 1DQ 1 - Financial Reporting Environment and GAAP
Week 1DQ 2 - Details of Financial Statements and Ratios
Week 2DQ 1 - Accounting EquationAccounting Cycle
Week 2DQ 2 - Accrual Accounting and Adjusting Entries
Week 3DQ 1 - Merchandising Operations and Income Statements
Week 3DQ 2 - Inventory Cost-Flow Assumptions
Week 4DQ 1 - Understanding Internal Control and Reporting Cash
Week 4DQ 2 - Accounting for and Reporting Receivables
Week 5DQ 1 - Plant Assets and Intangibles
Week 5DQ 2 - Accounting for Liabilities

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Acct 504 mart perfect education acct504mart.com

  1. 1. ACCT 504 Case Study 1 (Gordon Construction) FOR MORE CLASSES VISIT www.acct504mart.com Case Study 1 (Part A)Analyze the impact of business transactions on accounts; record (journalize and post) transactions in the books; construct and use a trial balance) During the first month of operation of Gordon Construction, Inc., completed the following transactions: Differentiating Depreciation Methods There is one main difference between straight line depreciation and accelerated depreciation. Straight line is decided by taking the cost of the assets, figuring out the salvage cost when the use of the asset is finished and how many years of use the asset has. A person then takes the cost minus salvage and divides the remainder by the number of years of use. This amount is the depreciation expense subtracted each year from the cost. The accelerated depreciation does not have the same amount of deprecation subtracted each year. It does have the cost minus salvage value to figure out the amount to use but is then divided out differently. A person takes the sum of the years of a product’s useful life, such as three years is 3 + 2 + 1 = 6, then a person would divide the depreciation amount by 3/6 the first year, 2/6 the second and finally 1/6 for the final year. So the amount of depreciation expense is larger to smaller with accelerated and equal amounts for straight line.
  2. 2. The advantages of straight line method are it is easier and faster to figure. The advantage of accelerated method is it is more accurate when figuring depreciation expense. The accelerated method has an advantage and disadvantage concerning taxes. A company can use the accelerated method to take advantage of bigger tax breaks at the beginning of an assets life, but since this amount drops during the lifespan if the company needs added tax breaks it will not receive them from these assets in the future. With the straight line method the amount of tax breaks are even through the life of the product. Most companies choose this form of depreciation for reporting purpose on taxes but will use the accelerated method to figure taxable income. As mentioned before the advantage of straight line depreciation is it is easier to figure and uses the same total each year for deduction of depreciation expense but the disadvantage is that if use for taxable income and reporting a company does not get a bigger tax break at the beginning of the assets life when they have just put out the cost for the item and may need a bigger tax break. ----------------------------------------------------- ACCT 504 Case Study 2 (Williams Oil) FOR MORE CLASSES VISIT www.acct504mart.com Case study (Learning Objectives 2, 4: Explain the components of internal control; evaluate internal controls) Each of the following
  3. 3. situations reveals an internal control weakness: Situation a. In evaluating the internal control over inventory for the Williams Oil Services Company, an auditor learns that the warehouse receiving clerk is responsible for ordering parts for supply inventory use in drilling services, counts the inventory when received at the dock, records the receipts into the inventory ledger, and takes the annual inventory, No supervisor reviews the receiving clerks work. Preparing an Income Statement The companies’ net income is profitable when the sales exceed the cost of goods sold. In this, the gross profit is $761k. This is beneficial to the company. Though we took the cost of goods away from the net sales there are still other areas which need to take a piece of the pie. For this company, once the SG&A and depreciation are taken out, the company still contains a profit of $290k. But the buck does not stop there. Once the interest income and interest expense are adjusted the balance before earnings and taxes is $290k. After taxes are taken out, the company is left with a net profit of $174k.
  4. 4. In this case I think the company has achieved success with a net profit of $174k. If the company were unable to be profitable, the company would eventually go out of business. We would be able to tell if the company was not profitable by looking at each section individually. The cost of goods sold is what stands out for me. If we pay more to make the product then we are actually selling it for, there is no profit to be made. So, I think it should all start there. ----------------------------------------------------- ACCT 504 Case Study 3 (Wang Appliance Store) FOR MORE CLASSES VISIT www.acct504mart.com Construct and use a cash budget) Nathan Farmer, chief financial officer of Wang Appliance Store, is responsible for the company?s budgeting process. Farmer?s staff is preparing the Wang cash budget for 2014. A key input to the budgeting process is last year?s statement of cash flows, which follows (amounts in thousands): Wang Appliance Store Statement of Cash Flows Week 3 DQ 1 Due Tuesday, Day 2 Post your answer to Problem 3.5 on p. 109 (Ch. 3). How might the information contained within the stockholder equity statement be
  5. 5. used for management and investor decision-making? Provide specific examples of situations in which the stockholder equity information might be used. The statement of stockholders’ equity provides the changes in the equity accounts during the accounting period more in depth than the balance sheet. The information found on the statement of stockholders’ equity includes retained earnings, common and preferred stock, and additional paid in capital. Management uses the statement of stockholders’ equity to ensure they are reaching their goal of maximizing shareholder's equity. The use of market ratios help with the analysis of the statement of stockholders’ equity, such as earnings per share, price-to-earnings, dividend payout, and dividend yield. These ratios will help both management and investors in analyzing the company. For example, if I were looking to invest in a company’s stocks I would utilize all of the financial ratios, as well as the market ratios. The earnings per share ratio is calculated before the price to earnings ratio, P/E, because the earnings per share ratio is used in the second. If a company pays dividends, the dividend payout ratio will come in handy. It tells us “The percentage of earnings paid to shareholders in dividends” (Investopedia, 2010, p. 1). References Investopedia. (2010). Dividend Payout Ratio. Retrieved August 3, 2010, from Investopedia:http://www.investopedia.com/terms/d/dividendpayout ratio.asp
  6. 6. Response 2 Explain what can be found on a statement of stockholders’ equity. The major elements of stockholders' equity include capital stock, paid-in capital, retained earnings, treasury stock, unrealized loss on long-term investments, and foreign currency translation gains and losses. How might the information contained within the stockholder equity statement be used for management and investor decision-making? Provide specific examples of situations in which the stockholder equity information might be used. Management may look at the stockholder’s equity statement retained earnings section to determine if company should borrow money for capital investments or finance it through various forms of equity. It may also be used by the stockholder to evaluate the compensation paid to the company officers. Investors may also look at the statement for cumulative net unrealized gains and losses before purchasing stock in the company. Investors are also interested in the paid in capital because they can compare it to the additional paid in capital and the difference between the two values will equal the premium paid by investors over and above the par value of the shares.
  7. 7. DQ 2 Week 3 DQ 2 Due Thursday, Day 4 Provide an example from the text or the Internet that demonstrates a situation in which a company’s net profits appeared good in the statements, but the gross or operating profits presented a different picture. Discuss how this might have occurred. Respond to the following question, addressed in Problem 3.6 on p. 109 (Ch. 3): “Why is the bottom-line figure, net income, not necessarily a good indicator of a firm’s financial success?” Look for indicators like liquidity or solvency to answer this discussion question. An example that demonstrates the situation is Enron. Enron’s financial statements did not show all the expenses and costs. Instead of showing them on the income statement they made entries so the cost and expenses would post in the balance sheet. The same was done with the revenues. This way it would be less expenses and the net profit appeared good. Many debts and losses were not reported in the financial statements. From the third quarter of 2000 through the third quarter of 2001, the directors fraudulently used reserve accounts within Enron Wholesale to mask the extent and volatility of its windfall trading profits, particularly its profits from theCalifornia energy markets; avoid reporting large losses in other areas of its
  8. 8. business; and preserve the earnings for use in later quarters. By early 2001, Enron Wholesale's undisclosed reserve accounts contained over $1 billion in earnings. The head of the company improperly used hundreds of millions of dollars of these reserves to ensure that analysts' expectations were met. In addition, Skilling and others improperly used the reserves to conceal hundreds of millions of dollars in losses within Enron's EES business unit from the investing public.This would show the creditors that Enron was making profits and its position was solid. The net income is not necessarily a good indicator of a firm’s financial success because the income statement only shows the profit or loss at a period of time and does not show the whole picture of the company. The Balance Sheet, Statement of cash flow, Statement of shareholders’ equity and the Income Statement all together give the real picture of the business. Each one of them shows different aspects of the business. These statements show where the income is actually coming from; is it from sales or from loans the company is borrowing? If the company is selling a building or any other asset but that does not mean that it is selling more products and making profit. Looking at the Income Statements the company might be making profit but at the same time it is extremely leveraged. Response 2 A company’s net income is not the whole picture, just part of it. There are lots of things that contribute to the net income that may not be significative to the company’s success. If the value of a dollar has a
  9. 9. sudden change that can affect the bottom line if the company happens to hold the medium of exchange that can benefit by the change that might occur. The company can falsely inflate the bottom line. A company’s net income is coupled with liabilities, cash flow, and selects financial ratios. Looking at it this way is a much better way of seeing what the company’s success is like. A company can change up many things to make it look like their income is better. These things that can be changed are single sales events, cash infusion, or false financial statements. Some things like debt that a company has, the company’s cash on hand, their capital assets conditions, or even their sales trends. To figure the success of the company, you must look at the whole picture. One thing cannot tell you all the facts of the company’s affairs. You cannot tell the net income of the company just from the bottom line. Look at all the financial records. Response 3 Provide an example from the text or the Internet that demonstrates a situation in which a company’s net profits appeared good in the statements, but the gross or operating profits presented a different picture. Discuss how this might have occurred. Respond to the following question, addressed in Problem 3.6 on p. 109 (Ch. 3): “Why is the bottom-line figure, net income, not necessarily a good indicator of a firm’s financial success?” Look for indicators like liquidity or solvency to answer this discussion question. Net income is not necessarily a good indicator of a firm’s financial success because they have ways to manipulate it by increasing their revenues or hiding some of their expenses. For investors trying to decide where to invest their money, they need to look more into
  10. 10. assessing how the company came up with the numbers they presented. An example of this situation is when Laribee Wire Manufacturing Co. exaggerated in recording their inventory value which allowed them in acquiring loans from six banks totaling to about $130 million using it as collateral. At the same time, they reported $3 million in net income for the period, but in actuality they lost $6.5 million. This company showed a higher net income by reporting fake inventory in which its value was overstated and transferred over to their income statement. When the banks assessed their financial statements, it was enough to sway them into lending the loans they needed. Reference: Investopedia. (2010). Spotting Creative Accounting On The Balance Sheet. Retrieved fromhttp://www.investopedia.com/search/searchresults.aspx?q=Spo tting+Creative+Accounting+On+The+Balance+Sheet&submit=Search ----------------------------------------------------- ACCT 504 Course Project Analysis of Nike, Inc. and Under Armour, Inc.
  11. 11. FOR MORE CLASSES VISIT www.acct504mart.com Course Project: A Financial Statement Analysis A Comparative Analysis of Nike, Inc. and Under Armour, Inc. Below is the link for the financial statements for Nike, Inc. for the fiscal year ending 2014. First, select 2014using the drop-down arrow labeled Year, and then select Annual Filings using the drop-down arrow labeled All. You should select the 10k dated 7/15/2014,and choose to download in PDF, Word, or Excel format. STOCK DIVIDEND Stock Split University of Phoenix Stock Dividend In the present time, the stock dividend has become important concept. When dividend is given in form of stock, it is called stock dividend. In this form of dividend, the cash does not use. It is important, when the corporation declares stock dividend, the market value of the share decreases because the number of stock increases. The many companies prefer stock dividend due to the tax benefit. If the individual gets stock dividend, he does not pay any tax on stock dividend. Thus the stock dividend reduces tax burden. On the other hand, the ownership of investors also spurs up in the company because the number of holding share increases. There is also disadvantage of stock dividend. The market value of the share
  12. 12. decreases, so the market value of holding also decreases (Kennon, 2009). The ABC Company is leading company in its industry. The number of outstanding share of the company is one million. On the other hand, the number of investors is five millions. The value of market capitalization is $100 million. The management declares 20% stock dividend. Thus the 200000 shares will be distributed as a stock dividend. The number of outstanding share will be increased by 200000 and the new total number of outstanding stock will be 1.2 million. On the other hand, the new value per share in the market will be $83.33 (100 million/1.2 million). This example is taken from below mentioned link: Stock Split The stock split is also an important concept. When the management wants to increases number of shares, the management follows this method. In this method, the face value of the share is split and number of share gets increased. Due to increment in number of outstanding share, the market value of per share also gets affected but the total market capitalization of the company does not affect. Both stock split and stock dividend increase number of outstanding shares but both are different due to the accounting treatment. In the stock split, the investors do not get any real benefit. It is also known as non-cash distribution of dividend. The motto behind stock split is to increase trading of the shares in the market (Baker, 2009) For example, the face value of per share is $100 and the total outstanding shares are 100 million. If the management of the company announces stock split in ratio of 1:2, the total outstanding shares will be increased by 100 million, thus the new total number of the share will be 200 million. On the other hand, the face value of the
  13. 13. share will reduce by 50%. So the new face value of the share will be $50. Due to effect of stock split, the holding share of the investor will also increase in the prorate basis. If the investor has 10 shares, now he will have 20 shares. It is important thing that the total issued capital will not be changed. The illustration of stock split has been got from following link: Reverse Stock Split The reverse stock split is just opposite of stock split. In this process, the management reduces the number of outstanding shares. The company increase face value of the share. In this method corporation decides a ratio such as 2:1. Thus the company accumulates two shares in one share. In this method, the total market value of company does not change. Due to reverse stock split, the earning per share and face value of per share rises. Thus the reverse stock split provides just opposite result from stock split. It is important question, why company selects this method. When the management seems that the face value of the share is less as compared to competitors then the company goes for this method to make its share value to equal to competitor’s share’s face value. It is also a sound strategy to increase treading of shares. If the face value of share is too cheap in comparison to competitors, the investors will be discouraged for investment. For increasing the confidence of investors, the management uses this method (Mladjenovic, 2009). For example, an investor holds 100 shares of XYZ Company and the face value per share is $50. If the management go for reverse stock split option and declares one share for 10 shares then the holding of the individual will reduce 9 shares for every 10 shares. Thus the new holding of the investor will be 10 (100/10) shares but the face value per share will be $500. It is also important that the total market
  14. 14. capitalization will remain as same as before reverse split. The example of the reverse split is take form below mentioned link: http://www.sec.gov/answers/reversesplit.htm. References Baker, H. K. (2009). Dividends and Dividend Policy. John Wiley and Sons. Kennon, J. (2009). All About Dividends. Retrieved May 31, 2010, from http://beginnersinvest.about.com/od/dividendsdrips1/a/aa040904_ 2.htm Mladjenovic, P. (2009). Stock Investing for Dummies. Dummies. ----------------------------------------------------- ACCT 504 Course Project Oracle and Microsoft Corporation (Devry) FOR MORE CLASSES VISIT www.acct504mart.com Course Project Financial Statement Analysis Project -- A Comparative Analysis of Oracle Corporation and Microsoft Corporation
  15. 15. Here is the link for the financial statements for Oracle Corporation for the fiscal year ending 2007. First, select 2007 using the drop- down arrow labeled for Year on the right-hand side of the page, and then select Annual Reports using the drop-down arrow labeled Filing Type on the left-hand side of the page. You should select the 10k dated 6/29/2007 and choose to download in PDF, Word, or Excel format. Analyzing an Income Statement The net income of Kodak has decreased a bit; it appears that the company is more profitable. By conducting a side by side analysis from 2004 to 2003 the company has increased in current assets and decreased in total assets. It appears that the company went down in property, plant and equipment net as well as discontinued operations. So, despite the decrease in total assets it looks like the company has made a good decision. The company has also decreased its total liabilities by about 4%. I believe this to be good because the short term borrowings and long term debt has decreased. To me, this means that the company is tightening their belt and paying off old debt. Total shareholders’ equity has down a little bit in dollars, but on the percentage level the company’s percentage has gone up. I believe this is because the company issued $104k more shares in 2004 than in
  16. 16. 2003. The company has the same amount of shares outstanding in 2004 that it did in 2003 as well. Retained earnings on the stock have gone up in 2004 as well. I believe this is contributed by the more shares that have been issued. I believe the profitability of the company is under good standings. They appear to be making the necessary adjustments in the company to stay with in a profitable income. ----------------------------------------------------- ACCT 504 Entire Course (Devry) FOR MORE CLASSES VISIT www.acct504mart.com ACCT 504 Week 1-7 All Discussion Questions ACCT 504 Week 3 Case Study 1 Flower Landscaping Corporation ACCT 504 Week 4 Midterm Exam Set 1 ACCT 504 Week 4 Midterm Set 2 Cash Flow Statement Analysis Cash Flow Statement Analysis The cash flow statement is important financial statement of the corporation. The cash flow statement states from where cash has come and where cash has been gone. Thus the cash flow statement
  17. 17. makes a relationship between beginning balance and ending balance of cash. The cash flow statement is prepaid on the basis of income statement and balance sheet of the company. The Little Bit Inc’s beginning cash balance including marketable securities was $24000. On the other hand, the ending cash balance including marketable securities of the company was $40000 (Weygandt, Kimmel & Kieso, 2009). The net income of the company was $5500 during 2009. The company generated cash inflow from operating activity is less as compared cash out flow from operating activities. The company generated $9000 negative cash balance in operating activity section of the cash flow statement. On the other hand, in the investment section, the firm has also negative cash balance. The firm has $7000 negative balance in investment section of the cash flow statement. The Little Bit Inc made investment during the year instead of selling of assets. Last section of the cash flow statement is financing activity section. In which, all finance related activities come. The corporation sold some shares and borrowed some money from outside lenders therefore the company has positive case balance by $32000 in financing activity section. Reference Weygandt, J.J.,Kimmel, P.D. & Kieso, D.E. (2009). Managerial Accounting: Tools for Business Decision Making. John Wiley and Sons. -----------------------------------------------------
  18. 18. ACCT 504 Final Exam (3 different finals) (Devry) FOR MORE CLASSES VISIT www.acct504mart.com 1. (TCO A) Which one of the following is an advantage of corporations relative to partnerships and sole proprietorships? (Points : 5) Reduced legal liability for investors Harder to transfer ownership Lower taxes Most common form of organization 2. (TCO A) When a corporation distributes a dividend, _____. (Points : 5) Week 5 DQ 1 Due Tuesday, Day 2 In what ways does the statement of cash flows relate to the balance sheet and income statement? It is important to understand what we are doing with the numbers and the results these numbers give us because the result is the information that will be available to us from financial statements. Although some want to see the income statement and ignore the other statements we need to use them together to see the total picture of what is happening to our business. The relationship between the numbers on the
  19. 19. financial statements shows us everything we need to know about the business. The income statement shows income and expenses for a period of time and if we are making or loosing money. The balance sheet compares the assets to liabilities and shows how much money the business would have if everything is sold today. The statement of cash flow might be the most critical statement because there is plenty of information we can gain form it. This statement relates with the income statement on operating activities to see if they are generating cash or not. It is related to the balance sheet on how much cash is used in investing activities. In relationship with the balance sheet the cash flow statement shows what cash is provided or used by financing activities. It will tell us how much debt has been paid and will indicated if we are using more debt or have paid down the credit line. When the business makes a sale or receives payment for a sale on credit that is an inflow. A sale shows up as income on the profit and loss statement and as an inflow on the cash flow statement. It also shows up either as cash or accounts receivable on the balance sheet. Also, how quickly we can collect on accounts receivable will play a big role in the cash flow. When the business spends money, it shows up as an expense in the profit and loss statement and as an outflow on the cash flow statement. It also shows up on the balance sheet as a decrease in cash, or an increase or decrease in liabilities, depending on what the expense represents. Response 2 In what ways does the statement of cash flows relate to the balance sheet and income statement?
  20. 20. The cash flow statement relates to the income statement and balance sheet. The net income from the income statement is listed on the statement of cash flows. Operating activities are analyzed on the statement of cash flows; this section of the statement reconciles the net income to the actual cash the company received from or used during operations. The second section of the statement of cash Flows is the cash flow from investing activities which include purchase or sale of assets. The last section in the Statement of Cash Flows is the cash flows from financing activities that includes raising cash by selling stocks/bonds or borrowing from backs; or cash out flows from paying back loans. The balance sheet shows the different account balances at the end of the accounting period. The statement of cash flows reflects changes in the accounts listed on the balance sheet between accounting periods. The net cash from operating, financing, and investing activities are added up to calculate the net change in cash. Week 5 DQ 2 Due Thursday, Day 4 Discuss how the statement of cash flows is utilized by investors. If you were an investor reviewing a statement of cash flows, what section might interest you most? Why? Discuss the circumstances in which other sections of the statement might be important to an investor. Prior to making an investment in a company, one would want to understand the decisions the owners are making to fund the
  21. 21. operations of the company daily. Maintaining sufficient cash to acquire new product, pay overhead, and satisfy generated sales would be the predominant need of the company. Second need would be for the company to have sufficient cash to remain competitive. This may require cash to invest in research and development, increase inventory as new product introduction, improve efficiency in plant and equipment, or cash to satisfy prior borrowing obligations. By reviewing the statement of cash flow, the investor can determine if the company is generating sufficient cash internally to fund operations or are they requiring outside injection of cash to finance the short fall in cash needed to operate the company. Last, the investor can review the statement of cash flow to better understand the leverage of the company and the requirement for repayment of debt, or dividends to reward prior investments. Response 2 Discuss how the statement of cash flows is utilized by investors. If you were an investor reviewing a statement of cash flows, what section might interest you most? Why? Discuss the circumstances in which other sections of the statement might be important to an investor. The statement of cash flow is utilized by investors because it has all information integrated from the balance sheet and the income statement. The statement of cash flow is used by an investor to see if the operating activities are greater than the net income to have earnings that are called “high quality”. If operating activities are less, then a red flag will be raised as to why the net income is not becoming cash. Another reason would be investors believe cash is the best. The statement shows all cash coming and going from the business. If the company generates additional cash than what is being used, then the company can reduce their debt, acquire another business, or buy some of the stock back. The last reason why would be that financial models are based upon the statement of cash flow.
  22. 22. If I was an investor reviewing a statement of cash flows the section that might interest me the most would be the operating activities. I would like to know how the company was doing and what areas need to be improved to have more cash generated in the business. All the sections are important to an investor so they can see the complete big picture of their investment. ----------------------------------------------------- ACCT 504 Midterm Exam (4 Sets, 2017) FOR MORE CLASSES VISIT www.acct504mart.com This Tutorial contains 4 Set of Midterm Exam 1. Question : (TCOs A and E) Your friend, Ellen, has hired you to evaluate the following internal control procedures. Explain to your friend whether each of the numbered items below is an internal control strength or weakness. You must also state which internal control procedure relates to each of the internal controls. For the weaknesses, you also need to state a recommendation for improvement. (1) The cashier counts the total receipts and reconciles the receipts with the cash register total Candela Corporation Axia College of University of Phoenix Candela Corporation
  23. 23. Candela Corporation and Subsidiaries have been working for over 34 years developing and commercialize aesthetic laser systems that allow physicians and personal care providers to treat a variety of cosmetic and medical conditions such as removal of spider veins, scars, stretch marks, warts, as well as hair removal and age spots, freckles and tattoos. Other skin treatments such as psoriasis and acne and acne scars are also treated. (Axia College, 2007) Going from top to bottom on The Candela Corporation and Subsidiaries Consolidated Statement of Cash Flows; for the operating activities, 2002 shows an alarming loss in the net income while 2003 and 2004 for the company are showing a significant and steady climb in the net income. In 2004 there was a new category added called Provision for the disposal of discontinued operations and the category has caused an increased the account for 2004. Loss from discontinued operations grew from 2002 to 2003 but had a significant decline for 2004. Depreciation has increased over the last 3 years as well. Provision for bad debts increased significantly too, but an increase in bad dept is expected as revenue increases. The provision for deferred taxes shows the company went from a loss in 2002 and 2003 to show there was no tax loss in 2004. The tax benefit from exercised stock options has practically doubled sense 2003. The changes in assets and liabilities for the last 3 years have been up and down. Receivables have increased, notes receivable decreased, and inventories have increased. Other current assets, other assets have also increased. Accounts payable has made a significant decrease in the last 3 years as well as accrued payroll expenses. The accrued payroll decreasing could mean that the amount of employees over the years has decreased as well. The accrued warranty costs have increased as well; this could mean that the company renewed equipment warranties. The net cash provided by operating activities
  24. 24. looks to have gone from a loss in 2002 to a large profit in 2003 and then a decrease, yet still a profit for 2004. It appears on the operations level that management needs to do more to regulate the company’s finances so there is not an up and down variance each year. The cash flow from investing activities shows me that in the last three years they had large amount of investments in 2002 and 2003 but now they are letting them decrease. The cash flow from financing activities states that the proceeds from issuance of common stock have increased significantly from 2002 to 2003 and rose a little more in 2004. The repurchases of stock has not happened sense 2002 and the principle payment of long-term debt grew in 2003 from 2002 and shows no activity for 2004. Same goes for the net borrowing on line of credit; it appears that Candela Corporation is current on payments to line of credit. So, the net cash from financial activities looks great for 2004. The cash and cash equivalents for each year have increased steadily. After reviewing the consolidated statement of cash flows for Candela Corporation, I believe the company is making a profit, but perhaps need some control over their operating activities.
  25. 25. Reference Axia College. (2007). Statement of Cash Flows. Retrieved June 14, 2010 from Axia College, Week Six, ACC 230. ----------------------------------------------------- ACCT 504 Week 1-7 All Discussion Questions (Devry) FOR MORE CLASSES VISIT
  26. 26. www.acct504mart.com Week 1DQ 1 - Financial Reporting Environment and GAAP Week 1DQ 2 - Details of Financial Statements and Ratios Week 2DQ 1 - Accounting EquationAccounting Cycle Week 2DQ 2 - Accrual Accounting and Adjusting Entries Week 3DQ 1 - Merchandising Operations and Income Statements Analyzing Statements of Cash Flows 4.8. Research Problem Choose five companies from different industries and locate their statements of cash flows for the most recent year. (a) Create a table to compare the dollars provided or used by operating, investing, and financing activities, as well as the overall increase or decrease in cash. (b) Create a second table for each company comparing this same information for each of the three years presented in that company’s statement of cash flows. Include an additionalcolumn that looks at the combined cash flows for all three years. (c) Write a short analysis of the information gathered. Your discussion should address, among other things, whether cash flow from operating activities is large enough to cover investing and financing activities, and if not, how the company is financing its activities. Discuss differences and similarities between the companies you have chosen.
  27. 27. (a) Create a table to compare the dollars provided or used by operating, investing, and financing activities, as well as the overall increase or decrease in cash. STATEMENT OF CASH FLOW ANALYSIS STARBUCKS HARELY DAVIDSON RITE AID 2008 2008 2008 NET INCOME / STARTING LINE $ 315.5 $ - $ (1,079.0) OPERATING ACTIVITIES $ 1,258.7 $ (684.7) $ 79.4 INVESTING ACTIVITES $ (1,086.6) $ (393.3) $ (2,933.7) FINANCING ACTIVITIES $ (184.5) $ 1,293.4 $ 2,904.0 CASH $ (11.5) $ 190.7 $ 49.9 (b) Create a second table for each company comparing this same information for each of the three years presented in that company’s statement of cash flows. Include an additionalcolumn that looks at the combined cash flows for all three years. STARBUCKS
  28. 28. 2008 2007 2006 Net Income/Starting Line 315.5 672.64 564.26 Cash from Operating Activities 1258.70 1331.22 1131.63 Cash from Investing Activities -1086.60 -1201.95 -841.04 Cash from Financing Activities -184.50 -171.89 -155.33 Net Change in Cash -11.50 -31.35 138.80 Net Cash - Beginning Balance 281.30 312.61 173.81 Net Cash - Ending Balance 269.80 281.26 312.61 HARLEY DAVIDSON 2008 2007 2006 Net Income/Starting Line 0 933.84 1043.15 Cash from Operating Activities -684.65 798.15 761.78 Cash from Investing Activities -393.25 391.21 -35.26 Cash from Financing Activities 1293.39 -1037.80 -637.02 Net Change in Cash 190.70 164.46 97.42
  29. 29. Net Cash - Beginning Balance 402.85 238.40 140.98 Net Cash - Ending Balance 593.56 402.85 238.4 RITE AID 2008 2007 2006 Net Income/Starting Line -1078.99 26.83 1273.01 Cash from Operating Activities 79.37 309.15 417.17 Cash from Investing Activities -2933.74 -312.78 -231.08 Cash from Financing Activities 2903.99 33.72 -272.84 Net Change in Cash 49.61 30.08 -86.75 Net Cash - Beginning Balance 106.15 76.07 162.82 Net Cash - Ending Balance 155.76 106.15 76.07
  30. 30. (c) Write a short analysis of the information gathered. Your discussion should address, among other things, whether cash flow from operating activities is large enough to cover investing and financing activities, and if not, how the company is financing its activities. Discuss differences and similarities between the companies you have chosen. Starbucks operating cash flow has gone up in 2007 and decreased a little in 2008. The net change in cash for Starbucks looks a on the down side but previously was doing well. The net loss in cash at end of year is decreasing from the previous year. This could mean that this year there can be a gain. Harley Davidson's operating cash flow has significantly decreased from 2007. It appears the company was on an upward cycle from 2006. The decrease in cash from operating activities is probable from the lack of information supplied for net income. With the economy the way it is and not many people buying at this point could have an effect on why the net income is decreasing. With a bounced back economy in the coming year could reflect a positive gain. Rite Aid's operating cash flow has taken a significant decrease as well from previous years. Although, after taking in cash from investing and cash from financing, the net change in cash is better than it has been in previous years. Rite Aid’s net gain in cash could be from the ever growing needs in medical supplies. This also could reflect the expansion of the company. -----------------------------------------------------
  31. 31. ACCT 504 Week 2 Homework (E2-17A, E2-18A, E3-22A, E3-23A) FOR MORE CLASSES VISIT www.acct504mart.com This Tutorial contains Excel Files which can be used to solve for any values (your Question may have different company name or values, but that can be solved using Excel file) E2-17A Dr Anna Grayson opened a medical practice specializing in physical therapy. During the first month of operation (May), the business, titled. Anna Grayson, Professional Corporation (P.C.), experienced the following events Findwhat.com Case - CheckPoint ACC 230 Findwhat.com has recorded the 135 percent increase in the revenue which is mainly due to the business acquired of Espotting during the year. The different accounting policies are present for the acquiring firm and the acquired firm. The company has recorded certain premature revenues for the amount which advertisers had made only the advance deposit. As result, the company is recognizing the vendor financing as revenue. In some places, the gross revenue has been recognized while in another, the net revenue has been recognized. The network click revenue is recognized at gross level while the private level revenue is taken at net level. Some of the revenue expenditures have been recognized as the capital expenditures. Revenue for set up network fee is treated as deferred revenue and is recognized over a period of time. The company is very inconsistent
  32. 32. with regards to its accounting policies in terms of recognition of revenue. The provision and treatment of amount for doubtful debt is also not satisfactory. When a customer clicks on a sponsored advertisement, the whole of the revenue due to him is recognized. The company is having a very high amount of doubtful debt balance at the end of the year ending December 31, 2004. ----------------------------------------------------- ACCT 504 Week 3 Case Study 1 (Melvin Plumbing Corporation) **New** FOR MORE CLASSES VISIT www.acct504mart.com MAKE SURE TO COMPLETE ALL REQUIREMENTS WHICH ARE LISTED BELOW. There are 10 sheets in the Workbook, including this one. All of the information that you need for the project is located in this Workbook. Requirement #1: During its first month of operation, the Melvin Plumbing Corporation, which specializes in residential plumbing, completed the following transactions. Week 7 DQ 1 Due Tuesday, Day 2 Post your answer to Study Question 5.2 on p. 180 (Ch. 5). As you read your classmates’ responses, consider the following scenario: If you compared two different companies that utilized two different valuation methods, how might the quality of the results differ? Also, comment on the difficulty of making comparisons between two firms that use different valuation methods.
  33. 33. Understanding the different inventory methods is crucial. First the person that establishes the inventory needs to determine which method to use. LIFO, or FIFO. LIFO means Last in First Out. This means that when a purchase is made, and sales are recorded the newest product is used first. So if I bought 10 combs at $2 on December 1st, and then I buy 5 combs at $2.50 on December 10th. When sales are made I am going to record sales using the $2.50 until I sell through the 5 combs that were purchased on the 10th, and then the cost will go to the previous purchase price of $2 until those 10 combs are sold through. FIFO is just the opposite. Meaning that goods are used in the order that they are received. The first items ordered, are the first items sold. Either method will pass an audit. It is important to note though that managers can't switch back and forth between the two methods. Profit will vary depending on which method is being used. Say you sold only 6 combs at $3 each. Using the LIFO method this would equal $3.50 profit. If you used the FIFO method, this would result in a $6.00 profit. Response 2 Post your answer to Study Question 5.2 on p. 180 (Ch. 5). As you read your classmates’ responses, consider the following scenario: If you compared two different companies that utilized two different valuation methods, how might the quality of the results differ? Also, comment on the difficulty of making comparisons between two firms that use different valuation methods. It is very important to understand which inventory valuation method is being used to determine the profit numbers quality. The balance sheet, statement of cash flow and income statement can be directly impacted by the valuation method that used to determine the costs
  34. 34. of inventory. The three methods that are used are FIFO, LIFO and Average Cost. The valuation ratios can be dramatically affected depending on the inventory valuation that is being used over a long- term period; especially because prices are likely to rise. When using FIFO you can increase net income, but then at the same time raise the amount taxes that business is obligated to pay. When using LIFO the inventory can be obsolete because they are old this will result in lower net revenue because the products pricing is higher. The Average Cost results usually fall between LIFO and FIFO. The bottom line can be affected mainly by the inventory analysis and the ratio results that are formed from that analysis. It is easier to compare companies that are in the same line of business, so I believe that quality of results would differ tremendously if different valuation methods were used. If you use LIFO that company may seem unattractive but they are performing well, as for FIFO it may look good as for profit, but may not be performing well. DQ 2 Week 7 DQ 2 Due Thursday, Day 4 Post your answer to Study Question 5.6 on p. 180 (Ch. 5). Discuss the consequences of poor quality reporting. What has the U.S.
  35. 35. government done to improve the quality of reporting after recent financial scandals such as Enron? I think that the significance is that the analysts only see this one HUGE transaction. The events that actually led up to this large transaction actually took place over a 2 year period. These items should have been written off as they occurred. Wall Street would not have known that the executives refused to write off these accounts when they should have. Wall Street only see's the one large transaction. If the company would have been more honest in their reporting they would have seen (more than likely) that there were many accounts over a two year period that should have been written off at different periods. So the analysts would not have seen a pattern of recurring write-offs. If the analysts only see the one transaction they are less likely to be able to paint an accurate picture of the financial standing of the business for investors, or potential investors. If the investors could see that there were many accounts that had to be written off maybe their investing decisions would have been different. The regulation of the accounting field has grown by leaps and bounds since the Enron scandal. The government has implemented several agencies and regulations to ensure honesty in accounting practices. SOX is one example of an agency that has been put into place to ensure honesty in accounting. SOX implements things like internal controls, and accountability for CEO's and CFO's. Response 2
  36. 36. I believe the impact and importance of this write-off event is a very big matter. It is obvious how they handled it that it was a scandal from the start. I think that everyone involved had a big role in how things played out. To me I think of the investors as a really big hit to this but also feel that audit committees have to be held responsible as well. It has been shown over many examples that adit oversights are happening to financial reporting. Although I do feel they are getting better and tighter due to conforming tightly with the GAAP requests. I feel over time the accounts receivable should have been written off in smaller increments and not all taken by $405 million at once. Maybe that isn't correct but it would have been easier I would think to take the receivables over time. Response 3 Wall Street should have read the footnotes and seen that the write off was for accounts receivables and should have been reported in the allowance for doubtful accounts. Every company that allow sales on credit face doubtful accounts; therefore, the write off may reoccur. The significance of this transaction is that WorldCom want to cover up the $405 million dollars that it was unable to collect from its customers, but WorldCom wrote off a large sum of money rather recording the write-off as needed and the analyst over looked it. Depending on how the company policy is for writing off accounts, from 1998 to the 3rd quarter in 2000 is 11 quarters. If the company wrote off bad accounts quarterly it should have wrote off 36,818,181.82 per quarter. Investors would not want to continue to invest into a company that has poor collection skills, or poor management. Unusual items are simply for those items that are not
  37. 37. recurring operating expenses. Bad debts do not fall under this category. Since the Enron and WorldCom scandals many rules and regulations have been put in place by the government such as SOX. More people are being held accountable for their actions and consequences follow poor quality reporting such as fudging the books. ----------------------------------------------------- ACCT 504 Week 3 Case Study 1 Flower Landscaping Corporation (Devry) FOR MORE CLASSES VISIT www.acct504mart.com The Entire Case Study is due Sunday at MidnightMountain time at the end of Week 3. This Case Study is worth 100 points or 10% of your final course grade. This Case Study relates to TCO's D and E and Chapters 3 and 4. MAKE SURE TO COMPLETE ALL REQUIREMENTS WHICH ARE LISTED BELOW. There are 10 Sheets in the Workbook including this one. All of the Information you need for the Project is located in this Workbook. Presenting to Stakeholders
  38. 38. Axia College of University of Phoenix Presenting to Stakeholders “Financial statements provide insight into the company’s current status and lead to the development of policies and strategies for the future” (Axia, 2007). Financial statements and notes to the financial statements should be used to analyze the company. For instance, what do the financial statements reveal about why the company has requested a loan or purchased items on credit? What is the firm’s capital structure and what does the firm have outstanding? How well can the company pay back debt? What recourses are used to pay debt? What is the company’s performance record and are there any future expansions? What are the expected returns and how successful is the company compared to industry averages? Which areas of operations contributed to the company’s success, and what are the strengths and weaknesses of the company? What changes can be made to improve the future performance of the company? Key financial ratios will assist in determining the information requested. Liquid ratios measure a firm’s ability to meet cash needs as they arise. The current ratio is a good tool to use because it measures the ability the firm has to pay debts when due. The current ratio for REC is at 2.4 times for 2007, although it is down from 2006 the company is still able to pay current debt when due. Cash flow ratio considers cash flow from operating activities has increased from 2006, and this indicates an improvement in short-run solvency. Average collection period has gone down 5 days within the last year. The cash conversion cycle gives in-site on why the cash flow has improved or decreased, in this case the conversion period for REC has improved by 26 days.
  39. 39. Activity ratios measure the liquidity of specific assets and the efficiency of managing assets. Accounts payable turnover is up seven times from the prior year and inventory turnover is also up .25 from last year. Accounts payable turnover is down 9.05 from 12.10 in 2006. This means that the company is taking longer to repay payables. The fixed asset turnover and total asset turnover ratios are used to assess management’s skills in generating sales from investments in assets. The fixed asset turnover has dropped slightly, but the total asset turnover has risen slightly. The increase in total asset turnover comes from improvements in inventory and accounts receivable turnover. Leverage ratios measure the extent of a firm’s financings with debt relative to equity and its ability to cover interest and other fixed charges (Axia, 2007). Debt ratio, long-term debt to total capitalization and dept to equity have all raised slightly implying a slightly riskier capital structure. The times interest earned and the cash interest coverage have increased since 2006. The interest payments can be covered 7.4 times this year. The cash interest has improved due to the operating profits and cash from operations. The fixed coverage ratio is also important in cases where companies use operating leases. In this case, the fixed charges have increased slightly. Profitability ratios are used to measure the overall performance of a firm and its efficiency in managing assets, liabilities, and equity. The ratios used are the gross profit margin, operating profit margin and net profit margin. All of which have improved for REC. As well as the cash flow margin, return on total assets, return on equity and cash return on assets. Over all the company seems to be in well financial standings and looking toward a profitable year.
  40. 40. Reference Axia College. (2007). The Analysis of Financial Statements. Retrieved June 28, 2010, from Axia College, Week Eight, ACC 230. ----------------------------------------------------- ACCT 504 Week 3 Quiz FOR MORE CLASSES VISIT www.acct504mart.com Q -1 Other comprehensive income A. includes extraordinary gains and losses. B. affects earnings per share. C. includes unrealized gains and losses on available-for-sale investments. D. has no effect on income tax. Q-2 Use the following data of TortoiseTortoise Sales, Inc Analysis of Scenarios: Debt Scenario would increase the debt ratios from to 50%. Equity Scenario would reduce the debt ratio to 40%. With Debt option, earnings per share would be higher. Interest declines to 2.86 times with the Debt option while times interest earned increases to 3.75 times with the Equity option. Either option exhibits a good use of
  41. 41. financial leverage because for both, the financial leverage index being greater than 1. However, it is higher using the Debt option. ----------------------------------------------------- ACCT 504 Week 4 Quiz FOR MORE CLASSES VISIT www.acct504mart.com Q -1 Anderson Company had the following information in 20142014. Accounts receivable 12/31/14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,000 Allowance for uncollectible account 12/31/14 (before adjustment). . . . . . . 850 Credit sales during 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000 Interpreting Financial Ratios Luna Lighting, a retail firm, has experienced modest sales growth over the past three years but has had difficulty translating the expansion of sales into improved profitability. Using three years’ financial statements, you have developed the following ratio calculations and industry comparisons. Based on this information, suggest possible reasons for Luna’s profitability problems.
  42. 42. Industry 2009 2008 2007 2009 Current 2.3X 2.3X 2.2X 2.1X Average collection period 45 days 46 days 47 days 50 days Inventory turnover 8.3X 8.2X 8.1X 8.3X Fixed asset turnover 2.7X 3.0X 3.3X 3.5X Total asset turnover 1.1X 1.2X 1.3X 1.5X Debt ratio 50% 50% 50% 54% Times interest earned 8.1X 8.2X 8.1X 7.2X Fixed charge coverage 4.0X 4.5X 5.5X 5.1X Gross profit margin 43% 43% 43% 40% Operating profit margin 6.3% 7.2% 8.0% 7.5% Net profit margin 3.5% 4.0% 4.3% 4.2% Return on assets 3.7% 5.0% 5.7% 6.4% Return on equity 7.4% 9.9% 11.4% 11.8% Based on this information, some possible reasons for Luna’s profitability problems are suggested as under:
  43. 43. a) Net Profit margin of the company has degraded and this might be due to decrease in the net income of the company due to increase in expenses. This needs to be improved upon by cost control and cost reduction. b) Return on equity of the company has degraded further and this also indicates that there is a decrease in the net income of the company due to increase in expenses. This needs to be improved upon by cost control and cost reduction. c) Fixed charge coverage has fallen, which means that the debt payment along with interest might have increased and this will also lead to decrease in the net income of the company and thus degrading the profitability position of the company. d) Operating profit margin has dropped even though gross profit margin has remained constant. It means that the operating expenses are higher and need to e controlled to improve the profitability of the company. e) The fixed assets turnover and the return on assets have also degraded; this also indicates decrease in the net income of the company. ----------------------------------------------------- ACCT 504 Week 5 Case Study 2 Internal Control - LJB Company (Devry) FOR MORE CLASSES VISIT
  44. 44. www.acct504mart.com Case Study 2 - Internal Control- Due by Sunday of week 5 LJB Company, a local distributor, has asked your accounting firm to evaluate their system of internal controls because they are planning to go public in the future. The President wants to be aware of any new regulations required of his company if they go public so he met with a colleague of yours at a local restaurant. The President of the company explained the current system of internal controls to your colleague. Capstone Discussion Question Due Tuesday, Day 2 • What have you learned in this course about the process of analyzing financial statements? I have learned that there is a lot more to analyzing financial statements than I thought. This class has made me question my decision to go into the accounting field. I feel inadequate after taking this class. I am not an articulate, or analytical person. I tend to get confused easily and do better at putting the information together than I am at figuring out what it all means. This is my last block of classes before my Bachelor program starts, and I don'tknow if I am ready, or if I even want to continue. Analyzing financial statements takes a very detail oriented mind, and one that is great at problem solving. It is critical to understand the financial statements, and how they relate to one another. There is a lot of information that is not as obvious as it would seem. Looking at the bottom line will not give a good picture of how a company is doing financially. It is important to know the how and why the bottom line looks the way that it does. Response 2
  45. 45. I have learned that it takes someone that has the patience, tenacity, and motivation to truly analyze the statements. If you go about it not wanting to do the work you wont give a good analysis. I found that you have to be willing to dig deeper than most would to get a full picture of the company. I found that it is not an easy task to complete. For me the process is a tedious one. I don't think I would want to go into that type of accounting where I have to analyze the statements of a company. I think for me I would be better in specialized accounting like A/P or A/R. I am better at figuring out problems and figuring out ways to make them better. I am better at specific tasks so for me I wouldn't want to analyze the statements. I am glad to have learned how, because at some point I am sure it will come in handy. Response 3 All financial statements are essential documents because they tell what has happened to a business over a period of time but most users of financial statement are more concerned aboutwhat will happen in the future. Stockholders and creditors are concerned with future earnings and dividends and company's future ability to repay its debts. Management is concerned with the company's ability to finance future expansion. Working as a bookkeeper I do all the steps in monthly cycles consisting of entering transactions into the journals, working with A/R, A/P, payroll and preparing the reports, but I have not been able to analyze the reports the way I learned in this class. I learned how important is to monitor and interpret the results. I learned how to compare financial statements of a company with a company from the same industry and point out the differences and similarities. This class taught me the importance of analyzing the Income Statement, Balance Sheet, Cash Flow Statement and Stockholder’s Equity each one individually. I learned how essential is the quality reporting and how useful this quality is in business decision making. I learned about key financial ratios: liquidity ratios, activity ratios, leverage ratios,
  46. 46. and profitability ratios. All these ratios are valuable as analytical tools and will help me indicate the areas of strength and weakness in a business. Even though I learned the information step by step in this class I tent to go over every single chapter all over again to better absorb the material. This class taught us the potential of some management manipulations of financial statements, thus following the general accounting rules, being honest, ethical and professional are the ways on leading to safe and profitable decisions. ----------------------------------------------------- ACCT 504 Week 5 Course Project Draft Spreadsheet (Devry) FOR MORE CLASSES VISIT www.acct504mart.com ACCT 504 Week 5 Course Project Draft Spreadsheet (Devry) Evaluating Financial Health 1 Evaluating Financial Health Apple Inc. (AAPL)
  47. 47. Axia College of University of Phoenix Evaluating Financial Health 2 Apple Inc. (AAPL) Apple is one of the strong market participants of computer industry. It also involve in manufacturing of telecom devices, software and other peripherals. It enjoys full advantage of USA as home country, as it has a strong retail network of 273 physical stores whose majority is in USA, beside the E-retail outlet around the globe. The diversified product portfolio empowers the apple to strive in tough competition against Dell, HP & Compaq (Electronista, 2010). Amongst its competitor Apple’s outclass profitability is witnessed of its effective diversification efficient reach of product to customer and state of an art Research and Development. Management‘s Strategy It is clear from the financial and the strategic analysis of the Apple Inc. that the management of the company believes in continued research, innovation and product development. It may be the sole reason that why the firm avoids the cash dividend and rely over the stock options. Besides the hardware business of computer the apple is also focus on developing application software operating system, and all such software application which added the value of its product. The management is of the view that R&D, integrated marketing channels and its product diversification is the source of competitive edge against rivals of its industry. Management is aware of the need of the investment in the promotion and advertisement activities; it increases the brand equity, brand loyalty and awareness about the products. Management also considers focusing on the retail store as it is the source to remain in contact with customer and a way to market the product directly; it is also a way to cross sell the market to customer.
  48. 48. Evaluating Financial Health 3 Financial returns in Comparison to Industry An investor is always keen to know about the profitability. Hence we start with the assessment of profitability. Apple Inc. has shown a tremendous improvement in net sales and profitability since 2005 to 2009. In 2008 the net income increases 75.07% and in 2009 increases 34.58% shown that Apple cop. is continuously enhancing its profit. Company earning PS is also at increasing trend. In 2009 basic EPS is 9.22 from 6.94 last year, and it was 4.04 in 2007. It should be noted that no cash dividend is announced since 2005, although stock base benefit and compensation is given. An increase in return on asset has been observed in 2009 i.e.26.96% against 19.33% last year while industries average is 19.8. Hence Apple is leading the Industry from this angle. Return on equity is 18.92% into 2009 lower than 33.40% of industry benchmark, meaning apple is at lower leverage with a roe increase of 4.03% this year (Hardware Marketplace, 2010). Financial Risk and Industry At this stage of our analysis we extend our findings to assessment of risk associated with the investment opportunities in APPLE Inc. Analyzing the liquidity we observed that Apple has a sound ability to meet its short term obligation.It is revealed by the healthy current ratio of 2.74 for the year 2009; it is improved from 2.46 of the last year 2008. If we had a glace on the industry it reflects a standard of 2.5. In the computer equipment industry a very low inventory has been observed. That is why the acid test ratio fall lightly below the current ratio i.e. acid test ratio is 2.70 for the year 209 in comparison to 2008, which were 2.43. If we compare the acid test of 2009 i.e. 2.70 with industry average, which is 2.5 (msn.com, 2010). On the liquidity Evaluating Financial Health 4
  49. 49. situation it is stated that the risk avoider will be glad to look at the satisfactory liquidity position. As far as the solvency risk is concern in the long run the debt equity ratio is 0.11 for the year 2009, which is increased from 0.08 of 2008. Here it is important to refer to the industry average of 0.07 (OnlyHardwareBlog, 2010). Hence it is apparent that though the APPLE Inc. is more risky in the long run, but it does not sound like the alarm. Cash Flow Analysis Due to the increase in sale the operation of the firm expanded, and hence besides other assets, the requirement of the cash also increases in 2009. $1.11 billion is generated from operations, which is 5.87% higher than the last year. The deferred tax expense in 2009 is v1040 million this noon cash expense last year it was 39 million and 78 million in 2007 (Electronista, 2010). The company actively invests in marketable securities that not only improve its liquidity, but rather give a room to meet hazardous need of raw inventory at any point of time. Investing activities gives negative balance $ 17.434 billion. It is also clear from the cash flow that firm does not announce any dividend in cash, rather it takes a tax benefit form stock base benefit; secondly, firm keeps healthy cash in hand. Apple and its Main Competitor When comparing the Apple with its major competitor like Dell & HP, Apple marks higher price earning ratio of 19.10 times that is greater than Dell and HP, which is 16 times and Evaluating Financial Health 5
  50. 50. 18.3 times respectively. We analyze the share price to book value it is 5.71 times; again higher than 4.1 times of Dell and 1.38 times of HP. Cause of higher market price is the retention of profit and stock base benefits. Apple also has high capitalization; the date is $ 250.0 billion (Electronista, 2010). Apple’s Performance and Economy Global economic recession is on the way to recovery, although Europe and America needs some more time to normalize. However, reasonable growth is observed in emerging market like Brazil, Malaysia, India and China. Triad block recorded a poor growth. What is going to be with the world economic outlook is the global economy is going to revive with the “V” shape pattern or its recovery would be like expanded “U” as some economist say growth will be slow. I am of the view that Apple Inc. should more focus on the emerging market like India, China, South Pacific region countries. So Apple needs to exploit more and more opportunities outside the USA. I am optimistic that the idea of direct marketing will work out side the USA as well. Hence Apple needs to introduce maximum retail store outside the USA. It is important to look at trend analysis and industry comparisons as a means of determining if it is the best time to expand or stay put and to see how its future products will be accepted by the public. Evaluating Financial Health 6
  51. 51. References Electronista. (2010). Apple only US computer builder to outgrow industry average. Retrieved July 2, 2010, from http://www.electronista.com/articles/10/06/04/isuppli.sees.apple.at.34 pc.world.market.share/ Hardware Marketplace. (2010). Computer Hardware. Retrieved July 2, 2010 from http://www.hardwaremarketplace.com/computer-hardware/ msn.com. (2010). Apple Inc: Key Ratios. Retrieved July 2, 2010 from http://moneycentral.msn.com/investor/invsub/results/compare.asp?Pa ge=PriceRatios&Sy mbol=AAPL OnlyHarwareBlog. (2010). Highest debt to equity ratio in the computer hardware industry detected in shares of international business machines. Retrieved July 2, 2010 from http://onlyhardwareblog.com/?p=2107 ----------------------------------------------------- ACCT 504 Week 5 Homework (E7-15A, E7-19A, E8-20A, E9-23A, E9-29A)
  52. 52. FOR MORE CLASSES VISIT www.acct504mart.com The units-of-production method tracks the wear and tear on the van most closely. Requirement 3. Which method would Tasteful's prefer to use for income tax purposes? Explain in detail why Tasteful's prefers this method. For income tax purposes, Tasteful's would prefer the double-declining-balance method because it provides the most depreciation, and thus, the largest tax deductions in the early life of the asset. Financial Analysis Wal-Mart Stores Incorporated operates chain of retail stores in USA as well as outside the USA. The first Wal-Mart store was opened by Sam Walton in Arkansas in USA in 1962. Within a span of five years; he opened more stores and he number increased to 24 stores across Arkansas. The incorporation of Wal-Mart Stores Incorporated was done in 1969. Wal-Mart grew in the United States of America by opening of more stores in to the country. The company not only opened the stores across Arkansas but also across the United States of America (Wal-Mart Corporate, 2010). Wal-Mart was opposed by the unorganized retail business holders in the USA as their business was affected by opening Wal-Mart stores. The company also opened its first store outside the USA in South America in 1995. Wal-Mart wanted to spread itself not only to the USA, but in other countries as well. In 2006, the company was having 3800 stores in USA and more than 2980 stores outside USA making it one of the largest retail chains in the world. This corporation was also having a vision to establish itself in to a global entity. Wal-Mart was one of the first companies to operate in the organized retail sector
  53. 53. (Fishman, 2006). The modes of entry used by the company were different for different countries. Wal-Mart used the mode of entry in to various countries according to the rules and regulations prevailing in to that country (Wal-Mart Stores Inc: Financial Statement, 2010). The sales of the company for the financial year ending in January 2010 are 413.8 billion dollars and income for the same period is 14.7 billion dollars. The quarterly sales growth for the company has been 5.90%, while the industry average is 6.80 %. The five-year annual growth in the sales of the company has been recorded at 7.50 % while five year annual growth of income is 6.58 %. By analyzing the financial statements of Wal–Mart Incorporated, we find that debt equity ratio of Wal-Mart is 0.71 on 31st January 2010, which is 0.68 for the industry. It means the proportion of debt of the company in its capital structure is lesser than the equity. The company is less leveraged so the interest burden on the company is minimal. Wal- Mart has capacity to borrow from the market for its CAPEX in the future. The interest coverage ratio is 13 times in January 2010, which is 21.9 for the industry. Wal-Mart needs to improve profitability to improve interest coverage ratio for the reduction of risk of the lenders of the company (Wal-Mart Stores Inc: Financial Statement, 2010). The total revenues received by the organization in the year ending January 2010 were $408.2 billion whereas revenues in the year ending January 2009 were $404.3 billion dollars. The revenues in the year ending January 2008 stood at $377 billion dollars. Thus, it can be easily analyzed that the total revenues of the organization has grown over the years steadily. This has also impacted the net income of the organization and thus, increments could also be seen in the net income of the organization. Net Income, which stood in the year ending 2008 at $12.7 billion, increased to $13.4 billion for the year
  54. 54. ending 2009 and again increased to $14.3 billion in the year ending 2010 (Wal-Mart Stores Inc: Financial Statement, 2010). Again if cash flow statement of the organization is analyzed it can easily be viewed that the cash flow from operating activities have always increased from the last three years. The cash flow from operating activities stood at $20.6 billion in the year ending 2008 has increased to $23.1 billion for the year ending 2009 and too further increased to $26.2 billion for the year ending 2010. But the cash flow from investing and financing activities has seen positive and negative fluctuations both. Here where net cash outflow from investing activities has decreased first and increased later again. For the year ending 2008, it stood at $15.6 billion which decreased to $10.7 billion but again increased to $11.6 billion. Again the net cash outflow from financing activities increased constantly since at the end of year 2008, it stood at $7.4 billion which further for the year ending 2009 increased to $9.9 billion and further increased to $14.1 billion for the year ending 2010 (Wal-Mart Stores Inc: Financial Statement, 2010). Wal-Mart’s return on equity has improved in the last three years, which is a good sign for the shareholders of the company. It was 19.9% in January 2008, which increased to 20.3 % in 2009 and then again marginally increased to 20.4 % in 2010. The return on asset has also shown the same trends in the last three years. In 2008 the return on asset was 7.9 %. It increased to 8.1 % in 2009 and then further increased to 8.4 % in 2010. It shows the increase in the efficiency in the utilization of the assets of the company. The net profit margins have been almost the same in the last three years in the company. It was 3.4 % in 2008, 3.3 % in 2009 and 3.5 % in 2010 (Wal-Mart Stores Inc: Financial Statement, 2010).
  55. 55. The price to sales ratio and price to book value ratio have shown negative trends in the last three years, which shows that the stock of the company is available at cheap price as compare to the price it was carrying three years back. The price to sales ratio, which was 0.55 in 2008, was decreased to 0.46 in 2009 and then improved to 0.51 in 2010. Similarly, price to book value ratio reduced from 3.12 in 2008 to 2.83 in 2009 and then improved marginally to 2.86 in 2010. This represents the better opportunity available for the shareholders to invest in to the stock of the company. The book value per share of the company has also increased in the last three years. It was 16.26 dollars per share in 2008, which increased to 16.63 dollars per share in 2009 and further improved to 18.69 dollars per share in 2010. This represents the increase in the retained earnings of the shareholders in the company (Shim & Siegel, 2007). Wal-Mart’s current assets level has shown stability in the last three years for the company, which shows the lesser investment in current assets for the company even with the increased sales. In 2008 the cash and marketable securities available with the company was 48020 million dollars, which increased to 48949 million dollars in 2009 and then decreased to 48331 million dollars in 2010. Quantitative Analysis holds huge significance while evaluating the financial health of the organization. Three types of techniques are used for quantitative analysis. The three techniques are trend analysis, common-size analysis and ratio analysis. Trend analysis is one of the significant quantitative analysis tools that assist in analyzing the financial health of the company as compared to its previous years. The year on year trends in the financial statements are studied to analyze whether organization is improving upon its past performance or it is further going down (Brigham & Houston, 2007).
  56. 56. Common-Size analysis is another quantitive analysis tool again one of another tool that helps in making evaluation of the financial health of the company as against its competitors. The financial statements of the company and its industry competitors are compared by taking a common base and then performance is analyzed as against the competitors. It helps in knowing whether the organization is performing better than its competitors or not. Ratio analysis is also used to evaluate the financial statements of an organization. This analysis is used to interpret the performance shown in the financial statements of the organization. The ratio analysis helps the organization compare performance over the years or in the same year (Brigham & Houston, 2007). Quantitative Analysis is used by the company and its stakeholders to analyze the financial performance of the organization. Trend analysis is used by the company, the shareholders and the investors to analyze the performance of the company over the years. Common- Size analysis is used by the competitors, management, and investors to evaluate the organization that is performing better whereas ratio analysis is used specifically by all the stakeholders to interpret clear and well defined results shown in the financial statements of the company (Brigham & Houston, 2007). These techniques help to evaluate the liquidity or short-term solvency. By using current ratio, one can analyze the effectiveness of the liquidity position of the organization. Profitability of the organization is also analyzed through profitability ratios, common- size analysis, as it helps to know the organization’s profits earned by the company as compared to others. Trend analysis and ratio analysis with the help of different asset turnover ratios and trends could easily analyze that assets are effectively used or not (Brigham & Houston, 2007).
  57. 57. Wal-Mart’s current stock price is 50.56 dollars. The stock has gone up as high as 56.27 dollars, and as low as 47.35 dollars in the last year. The earnings per share of the company which was 3.16 dollars per share in 2008, was increased to 3.35 dollars in 2009. Earnings per share further increased to 3.76 dollars in 2010. The analysis shows the improvement in the earnings of the company in the last three year. The current price earnings ratio of the company is 13.2 which is less than the industry average of P/E ratio of 15 times (Wal-Mart Stores Inc (WMT), 2010). Analyzing the stock of the company from the investment point of view, we can estimates that the fundamentals of the company are very strong. The stock has return on equity, return on assets better than the industry average of 22.9 % and 9.1 % respectively. The company has given a better annual average return on asset and return on equity in the last five years as compared to the industry. The company has a debt equity ratio and net profit margin, which is less than the industry. However, Wal-Mart is improving on the efficiency front. As a result, Wal-Mart stock is recommended for investment. References Brigham, E.F. & Houston, J.F. (2007). Fundamentals of Financial Management. (11th ed.). Cengage Learning. Fishman, C. (2006). The Wal-Mart Effect: How the World Most Powerful Company Really Works-- and How it's Transforming the American Economy. Penguin Group Shim, J.K. & Siegel, J.G. (2007). Schaum's Outline of Financial Management. (3rd ed.). McGraw-Hill Professional.
  58. 58. Wal-Mart Corporate. (2010). History. Retrieved July 25, 2010 from http://walmartstores.com/AboutUs/297.aspx Wal-Mart Stores Inc: Financial Statement (2010). Retrieved May 31, 2010, from http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx ?Symbol=WMT Wal-Mart Stores Inc. (WMT) (2010). Retrieved May 31, 2010, from http://finance.yahoo.com/q/co?s=WMT+Competitors ----------------------------------------------------- ACCT 504 Week 6 Case Study 3 - Cash Budgeting - LBJ Company (Devry) FOR MORE CLASSES VISIT www.acct504mart.com ACCT504 Case Study 3 on Cash Budgeting The cash budget was covered during Week 4 when we covered TCO D and you read Chapter 7. There is also a practice case study to work on. Your Professor will provide the solution to the practice case study at the end of Week 5. This case study should be uploaded by 11:59PM Mountain time of the Sunday ending Week 6 to the Week 6 Assignment Dropbox. You are encouraged to use the Excel template file provided in Doc Sharing.For this week's checkpoint we had to look up three job postings in the field of accounting. I'm glad that I got this opportunity because it actually opened my eyes and expanded my knowledge in the accounting field. The three job positions are listed below. The first job title was Senior Internal Auditor. A Senior Internal Auditor responsibilities is to plan and perform financial, operational audits, and identify business process risk. This job
  59. 59. position only specified that the pay was well over 100k a year!!!! Qualifications BA/BS, and minimum of 3-4 years public accounting. The second job posting was a Tax Manager. Tax Manager is responsible for conducting basic tax research, maintain tax records and ensure proper tax accounting. This position requires a BA in Accounting, and a minimum of 7-8 years of expereience.The job pay is listed as 120k!!! The third job posting was Assistant Corporate Controller- SR Management. Assistant Corporate Controller- SR Management position Inventory Accounting for North America, Credit management for North America and Corporate accounting for Latin America, responsible for assuring accuracy of inventory and sales and works closely with external auditors on receivable audits. The requirements for this position is as follows, BA/BS, public accounting experience preferred, Strong verbal and written communication. For the Assistant Corporate Controller- SR Management the salary pay starts at 110k-130k with bonus and benefits. I didn't know that Accounting career actually paid this much. I might think about changing my careers. ----------------------------------------------------- ACCT 504 Week 6 Homework (E10-19A, E10-25A, E12- 16A, E12-20A) FOR MORE CLASSES VISIT www.acct504mart.com This Tutorial contains Excel Files which can be used to solve for any values (your Question may have different company name or values, but that can be solved using Excel file)E10-19A Army Navy Sporting Goods is
  60. 60. authorized to issue 10,000 shares of common stock. During a two-month period, Army Navy completed these stock-issuance transactions: Discussion Question 1: Based on what you know about accounting, what role do you see it playing in business operations? How dependent do you think a business is on its accounting department? Why? Accounting plays many important roles especially when it comes to business operations. Accounting is mainly responsible for almost all of the financial needs of the business. It keeps track of all spending, profit and loss that the company inquires. The business is very dependent on it accounting department. Accounting department is responsible for monitoring more than the cash flow, it also works closely with IRS, government to make sure that everythingis being done correctly (payroll, taxes, etc). The accounting side of the business can be considered to be the lungs of the company next to the heart. Discussion Question 2: Why are ethics so important in the field of accounting? Wow where should I start? First of all the when dealing with accounting there must be consistent clear communication between the business and the accounting department. Honesty is always the best policy. Good ethnics keeps the business running at its top level.The company's personal information, employee information could be given to the wrong hands and it can destroy the company. A good accounting department has way too much to lose and they will not want to riska horrible reputation in the field.
  61. 61. Another response People bring all their financial information to an accountant who in turn looks through all of it with a fine tooth comb. People need to know that they can trust this person with all of their personal information. Most licensed professionals swear to a code of ethics, whether they follow them or not is up to that professional. Unfortunately there are many out there that do not and they ruin the trust for other professionals. Accountants really need to have the trust of their clients being that they work with peoples taxes and finances and need much information from their clients. Another response Ethics are important in the field of accounting for several reasons. Ethics mean different things to differnt depending on the role of the accountant. If an accountant is hired by an individual or a business, that accountant is trusted with the finances of the person or business. The accountant is trusted to give an honest account of finances and not to defraud or jeopardize that individuals or companies relationshipwith the government, creditors of financiers. Individuals and businesses also trust the ethics of accountants insofar that they do not disclose their information to those that do not have a right to it. Finally, In the accounting profession, much like many other professional service professions, an accountants reputation is the continuing source of employment.If they are knows to have a bad or evenflexible ethical code then they can develop a bad reputation and experience a loss of business. ----------------------------------------------------- ACCT 504 Week 7 Course Project JCP Kohls (Devry) FOR MORE CLASSES VISIT
  62. 62. www.acct504mart.com
  63. 63. Financial Statements Today, I will be describing a balance sheet, income statement, retained earnings statement, and statement of cash flows and how a company uses these financial statements as a tool to make future decisions for the company. Balance Sheet A balance sheet a statement sheet that reports the company’s financial balances of the business. This sheet includes the company’s total of assets and liabilities. It is used for all three types of business sole proprietorship, business partnership and corporate business company’s. Creditors rely on this financial sheet to determine if the company will be able to repay. Income Statement An Income Statement is a financial statement that shows the company’s profit and losses. It basically shows all the company’s gains and losses that were made during a period of time. After the company deducts the expenses from the revenue then you will get a total net income. This is a great statement to use especially because this will show investors how much net income is the company bringing in, or how financially stable the company truly is. Retained Earnings Statements
  64. 64. Retained Earnings Statements reports the changes to the retained earnings (net income in a corporation) during a certain time period. This financial statement shows dividends, profits and loses. Investors and Lenders monitor the retained Earning Statements especially when it comes to monitoring dividends. Some invest use this tool to see if the company is paying high/low dividends. Retained Earnings Statement is part of the balance sheet under Stockholders equity. Statement of Cash Flow Statement of Cash Flows provides information regarding the company’s cash receipts. This statement gives a detailed account of the operating, investing and financial activities of the company. It also allows investors a chance to observe how financially stable the company is so that they can make a choice if they want to take a risk on investing into the company. Also the accounting department needs this statement in order to see if the company has enough money for payroll uses. All four of these financial statements are all extremely important tools to use in the business. Another statement that was not listed but is often used is called comparative statements. Comparative statement gives a side by side comparison of the financial statements above. Reference
  65. 65. http:yourdictionary.com /accounting_statements.org Retrieved 1/28/10 Thomas, Y. 2005-08-27 “Accounting 101 pg. 52 Statements

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