10 Jan 1. Return on sales

Module 1 discussion

What year did the FASB take on the responsibility of developing generally accepted accounting principles (GAAP)? Which body accepted the primary responsibility for the development of GAAP prior to the FASB? Do you believe the FASB should continue to be the organization primarily responsible for the development of GAAP? Why or why not?

Module 2 discussion

The balance sheet, also known as the statement of position, shows a company’s financial position at a point in time. Included on the balance sheet are various assets that are reported at an estimated value. Discuss the importance of the balance sheet to stakeholders, including, but not limited to, investors, creditors, and governmental entities. With the core value of integrity in mind, explain why it is important that management ensure the reliability of the estimates used by accountants and the information provided on the balance sheet.

Module 3 discussion

An income statement is a summary of revenues and expenses and gains and losses, ending with net income for a specific period of time. Indicate the two traditional formats for presenting the income statement. Which of these formats is preferable for analysis? Why?

Module 4 discussion

Ratio analysis is quantitative analysis of information contained in a company’s financial statements. Common-size analysis converts each line of financial statement data to an easily comparable amount measured as a percent. Both ratio analysis and common size analysis are important tools used to analyze the financial results of corporations. Explain the importance of both types of analysis. In your explanation, it is imperative you provide examples of ratios with their measurement. Do you believe ratio analysis is better than common size analysis or vice versa? Why or why not?

Module 5 discussion

Companies carry various types of long-term assets on their books. These may include property, plant and equipment, investments in bonds, investments in stocks, patents, and goodwill, to name a few.

Is it feasible for managers to get a precise measurement of the funds that could be available from long-term assets to pay long-term debts?

Locate the annual report (10K) of a publicly traded company. Discuss the types of long-term assets on the books that could potentially be used to pay off the long-term debts. Is this company in a position to pay off all their long-term debts with their long-term assets?

Module 6 discussion

Profits might be compared with assets, sales, and stockholders’ equity. Why might all three bases be used? Will trends in these ratios always move in the same direction? Why?

Compute the ratios for an actual company. Did the ratios move in the same direction from one year to the next?

Module 7 discussion

A member of the board of directors is puzzled by the fact that the firm has had a very profitable year but does not have enough cash to pay its bills on time. Explain to the director how a firm can be profitable, yet not have enough cash to pay its bills and dividends.

Module 8 discussion

Financial ratios are used extensively to analyze, interpret, and explain the information provided in financial statements.

Why do you believe this is so?

Who are some of the stakeholders interested in financial ratios and analyses?

Calculate 3 or 4 financial ratios of an actual company. Show how you calculated these ratios, describe the meaning of the ratios you selected, and discuss why you chose to calculate these ratios.

ACC 549 Financial Statement Analysis Project Guidelines

This project consists of six parts. You are to act as a financial advisor to a client interested in

investing in a particular industry. You will research two separate companies in the same industry and

provide a recommendation to your client which company, if any, he/she should invest in. One of the

companies should be a U.S. public company (10-K Annual Report), the other company should be a

foreign company listed on a U.S. exchange (20-F Annual Report). Good examples: Ford and Toyota.

Part 1: Selection of companies

Submit the names of your two public companies to the instructor for approval. Identify the industry

they are in. Make sure one is a US Company and one is a Foreign Company listed on a US

Exchange.

Submit to the Dropbox no later than Sunday 11:59 PM EST/EDT of Module 1.

Part 2: Obtain Financial Statements from SEC.GOV

Obtain six years of financial statements for your company from SEC.gov. Do not use other sources

(Yahoo Finance or the Company Website) to obtain this information.

Resources: SEC Edgar Database at sec.gov

1. Go to www.sec.gov

2. Search for Company Filings

3. Enter Company Name, example (Nike Inc.)

4. For the Annual Report select 10-K (or 20-F)

5. Select documents

6. Select form 10-K (or 20-F)

7. This is the entire annual report, you only need the financial statements

Submit to the Dropbox no later than Sunday 11:59 PM EST/EDT of Module 2.

Part 3: Enter data into the FSAP (Financial Statement Analysis Package) Excel File Enter the

Balance Sheet and Income Statement amounts for 5 years into the Financial Statement Analysis

Package Excel file on the Data Tab of the FSAP.

Resource: FSAP Excel file.

Submit to the Dropbox no later than Sunday 11:59 PM EST/EDT of Module 3.

Part 4: Company Analysis

Write a brief description of the primary business activities for your assigned companies. Focus more

on their position within the industry, recent developments, fluctuation in stock prices relative to the

market/industry, and other items of significance that would impact your investment decision. Do not

focus on the history and background of the company, but rather on information that would be

relevant to decision makers.

The paper should be 2-3 pages, 12 pt. font, single spaced.

Resources: Annual Report (management discussion and analysis), Company website, trade

journals.

Submit to the Dropbox no later than Sunday 11:59 PM EST/EDT of Module 4.

Part 5: Industry Analysis

Summarize the economic outlook for your industry. Look at recent market activity, recent indicators

impacting your industry. Address recent change in stock prices. Obtain industry averages for your

ratio, vertical, and common size analysis (see the Analysis tab of the FSAP). Consider other expert

buy/sell/hold opinions.

The paper should be 1-2 pages, 12pt. font, single spaced.

Resources: Standard and Poor’s Stock Reports or other Industry Surveys, Mergent’s Industry

Review, Finance.yahoo.com, moneycentral, msn.com, hoovers.com, other financial websites, annual

reports, and trade journals. Examine recommendations of other investment websites (buy/sell/hold).

Incorporate peer reviewed academic research articles into your analysis. Analysis tab of the FSAP

Excel file.

Submit to the Dropbox no later than Sunday 11:59 PM EST/EDT of Module 5.

Part 6: FINAL PAPER

1. Include Company Analysis (address prior comments): 2-3 pages

2. Include Industry Analysis (address prior comments): 1-2 pages

3. Include FSAP summary – Summarize the Analysis Tab of the FSAP which contains Ratios,

Horizontal Analysis, and Common Size Analysis. Summarize the information in a

professional and organized manor. Do not just cut and paste the information into your paper.

4. Write a summary of the significant findings from the financial statement analysis. This should

be 2-3 single-spaced pages, using 12-point font. Address the Company & Industry analysis.

Address significant Ratios, Horizontal Analysis, and Common Sized Analysis from the FSAP

(look under the Analysis Tab). Do not address all the ratios and every line of vertical and

horizontal analysis, just what you feel is important and significant to your decision. Focus on

the specific items that stood out and impacted your decision. Include academic research to

support your analysis.

5. Based on your findings, which company, if any, would you invest in? Include specific support

for your decision based on your findings in the analysis. Also include support (for or against)

investing in the industry you chose. Include academic research to support your final decision.

This should be one page, 12-point font, single-spaced.

Resources: Textbook and Academic peer-reviewed journal articles.

The Final Paper should be 6-9 single-spaced pages plus tables.

Submit the Project Part 6: Final Paper to Chalk and Wire no later than Sunday 11:59 EST/EDT of

Module 8. The Project Part 6: Final Paper Chalk and Wire link is located in the Module 8 folder.

Students who do not submit the assignment to Chalk and Wire will receive a zero. This is a key

program assessment; the results are used to ensure students are meeting program goals. Video and

PDF instructions can be found on the course home page. PDF instructions are also located in the Start Here folder

ACC549_Assignments by Teaching Faculty

1

Week Case Number

1

Case 1- 1, page 32

Case 2-2, page 83

2

Case 3 – 1, page 139

Case 3- 3, page 145

3

Case 4 – 4 page 193

Case 4- 5 page 193

5

Case 5- 4 page 222 (Use the 10-K for 2016)

Case 6-1 page 263

Case 7-2 page 311

6

Case 7-11 page 320

Case 8-3 page 354

7

Case 9-1 page 383

Case 10-1 page 423

Case 10-2 page 424

Midterm exam

Question 1 Listed below are several qualitative characteristics. Label the characteristic (or characteristics) that align with each statement.

a. Understandability

b. Usefulness for decision making

c. Relevance

d. Reliability

e. Predictive

f. Feedback value

g. Timely

h. Verifiable

i. Representational faithfulness

j. Neutrality

k. Comparability

l. Materiality

m. Benefits of information should exceed its cost

___ 1. Two constraints included in the hierarchy.

___ 2. For this quality, the information needs to have predictive and feedback value and be timely.

___ 3. These are the qualitative characteristics that are viewed as having the most importance.

___ 4. SFAC No. 2 indicates that to be reliable, the information needs to have these characteristics.

___ 5. Interacts with relevance and reliability to contribute to the usefulness of information.

___ 6. Two primary qualities that make accounting information useful for decision making.

___ 7. For this quality, the information must be verifiable, subject to representational faithfulness, and neutral.

___ 8. SFAC No. 2 indicates that to be relevant, the information needs to have these characteristics.

Question 2 Listed below is information related to several adjusting entry situations. Assume that the accounting year ends on December 31.

a. $3,000 paid for insurance on October 1 for a one-year period (October 1 – September 30). This transaction was recorded as a debit to prepaid insurance ($3,000) and a credit to cash ($3,000).

b. Interest on bonds payable in the amount of $500 has not been recorded at December 31.

c. Rent expense in the amount of $1,200 was paid on November 1. This transaction was recorded as a debit to rent expense ($1,200) and a credit to cash ($1,200). This rent payment was for the period November 1 to January 31.

Record the original entries and the adjusting entries using T-accounts

Question 3 A partial list of accounts for Johnson and Clark, in alphabetical order, is presented below:

Accounts Payable

Interest Receivable

Accounts Receivable

Inventory¾Ending Balance

Accrued Salaries Payable

Land

Accumulated Depreciation¾Buildings

Land Held for Future Plant Site

Accumulated Depreciation¾Equipment

Loss on Sale of Equipment

Additional Paid-In Capital¾Common Stock

Marketable Securities

Allowance for Doubtful Accounts

Noncontrolling Interest

Bank Loan (long-term)

Notes Payable (long-term)

Bonds Payable

Obligations on Long-Term Loans

Buildings

Patent

Cash in Bank

Preferred Stock

Commission Expense

Premium on Bonds Payable

Common Stock

Prepaid Expenses

Current Portion of Long-Term Debt

Purchases

Equipment

Retained Earnings

FICA Taxes Payable

Sales

Franchise

Sales Salaries Expense

Goodwill

Treasury Stock

Interest Income

Unearned Rent Revenue

Prepare a consolidated balance sheet in good format, without monetary amounts, for December 31, 2012. Use the format Current Assets; Property, Plant, and Equipment; Investments; Intangibles; Current Liabilities; Long-Term Liabilities; and Stockholders’ Equity. Do not use the accounts not found on the balance sheet.

Question 4 The following is a partial listing of accounts for Euisara, Inc., for the year ended December 31, 2012.

Prepare a balance sheet in good format for December 31, 2012.

Finished Goods

$ 9,718

Current Maturities of Long-Term Debt

1,257

Accumulated Depreciation

9,980

Accounts Receivable

24,190

Sales Revenue

127,260

Treasury Stock

251

Prepaid Expenses

2,199

Deferred Taxes (long-term liability)

8,506

Interest Expense

2,410

Allowance for Doubtful Accounts

915

Retained Earnings

18,951

Raw Materials

9,576

Accounts Payable

19,021

Cash and Cash Equivalents

8,527

Sales Salaries Expense

872

Cost of Goods Sold

82,471

Investment in Unconsolidated Subsidiaries

3,559

Income Taxes Payable

8,356

Work In Process

1,984

Additional Paid-In Capital

9,614

Equipment

41,905

Long-Term Debt

15,258

Rent Income

2,468

Common Stock

3,895

Notes Payable (short-term)

6,156

Income Tax Expense

2,461

Question 5 The income statement for Lifeline Products in single-step format follows.

Lifeline Products

Income Statement

For the Year Ended December 31, 2012

Revenues:

Sales

$3,000,000

Rent Income

14,000

$3,014,000

Costs and Expenses:

Cost of Sales

2,370,000

Selling and Administrative Expenses

322,000

Interest Expense

48,000

Loss on the Sale of Plant Assets

16,000

$2,756,000

Income Before Taxes

$ 258,000

Income Taxes

112,000

Net Income

$ 146,000

Earnings per Share

$ 7.30

a. Convert the statement to multiple-step format.

b. Recompute net income with the unusual loss removed.

c. Why may net income with the unusual loss removed be preferable to use for trend analysis?

d. Speculate on why this loss is not considered extraordinary or as a disposal of a segment.

Question 6 Comparative income statements for 2012 and 2011 follow.

2012

2011

Sales

$9,434,000

$7,862,000

Cost of Sales

7,075,400

5,660,640

Gross Profit

$2,358,600

$2,201,360

Operating Expenses

1,367,690

1,365,060

Operating Income

$ 990,910

$ 836,300

Interest Expense

157,500

126,000

Earnings Before Tax

$ 833,410

$ 710,300

Income Taxes

400,000

317,200

Net Income

$ 433,410

$ 393,100

a. Prepare a vertical common-size analysis of this statement for each year, using sales as the base.

b. Comment briefly on the changes between the two years, based on the vertical common-size statement.

Question 7 Bill’s Produce does 60 percent of its business during June, July, and August.

For Year Ended

For Year Ended

December 31, 2012

July 31, 2012

Net Sales

$700,000

$690,000

Receivables, less allowance for doubtful accounts:

Beginning of period

45,000

80,000

(allowance, January 1, $2,000; August 1, $3,000)

End of period

(allowance, December 31, $3,000;

50,000

85,000

July 31, $3,500)

a. Compute the days’ sales in receivables for July 31, 2012, and December 31, 2012, based on the data above.

b. Compute the accounts receivable turnover for the period ended July 31, 2012, and December 31, 2012.

c. Comment on the results from (a) and (b).

Final exam

Question 1 (1 point) Question 1 Unsaved

The following information is computed from Fast Food Chain’s annual report for 2012.

2012

2011

Current assets

$ 2,731,020

$ 2,364,916

Property and equipment, net

10,960,286

8,516,833

Intangible assets, at cost less applicable

amortization

294,775

255,919

$13,986,081

$11,137,668

Current liabilities

$ 3,168,123

$ 2,210,735

Deferred federal income taxes

160,000

26,000

Mortgage note payable

456,000

–

Stockholders’ equity

10,201,958

8,900,933

$13,986,081

$11,137,668

Net sales

$33,410,599

$25,804,285

Cost of goods sold

(30,168,715)

(23,159,745)

Selling and administrative expense

(2,000,000)

(1,500,000)

Interest expense

(216,936)

(39,456)

Income tax expense

(400,000)

(300,000)

Net income

$ 624,948

$ 805,084

Note: One-third of the operating lease rental charge was $100,000 in 2012 and $50,000 in 2011. Capitalized interest totaled $30,000 in 2012 and $20,000 in 2011.

a.

Based on the above data for both years, compute:

1.

Times interest earned

2.

Fixed charge coverage

3.

Debt ratio

4.

Debt/equity ratio

5.

Debt to tangible net worth

b.

Comment on the firm’s long-term borrowing ability based on the analysis.

Question 1 options:

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Question 2 (1 point) Question 2 Unsaved

Company P had the following capital structure at year-end after closing.

6% Bonds

$10,000,000

3% Preferred Stock

20,000,000

Common Stock ($10 par)

10,000,000

Paid-In Capital in Excess of Par

15,000,000

Retained Earnings

35,000,000

a.

The return on common equity was 9%. Determine the net income assuming common stock dividends were declared and paid.

b.

Using your answer in (a), compute return on investment. Assume that the bond interest is the only interest expense and the tax rate is 50%. Use year-end balance sheet figures.

c.

Compute basic earnings per share. Assume the same number of common shares throughout the whole year.

d.

Compute book value per share.

e.

If the market value is $78, compute the price/earnings ratio using your answer to (c).

f.

Would you expect the market price to be higher than the book value per share?

Question 2 options:

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Question 3 (1 point) Question 3 Unsaved

The following statements are presented for Melvin Company.

Melvin Company

Balance Sheet

December 31, 2012, and 2011

Assets

2012

2011

Cash

$ 625

$ 499

Marketable securities

260

370

Trade accounts receivable, less allowances of 36 in 2012

and 18 in 2011

1,080

820

Inventories, FIFO

930

870

Prepaid expenses

230

220

Total current assets

$3,125

$2,779

Investments

$ 820

$ 600

Property, plant, and equipment:

Land

$ 130

$ 127

Buildings and improvements

760

670

Machinery and equipment

2,100

1,400

$2,990

$2,197

Less allowances for depreciation

1,100

890

$1,890

$1,307

Goodwill

500

550

Total assets

$6,335

$5,236

Liabilities and Shareholders’ Equity

Accounts payable

$1,200

$ 900

Accrued payroll

100

80

Accrued taxes

300

200

Total current liabilities

$1,600

$1,180

Long-term debt

900

750

Deferred income taxes

300

280

Shareholders’ equity:

Common stock

1,000

1,000

Retained earnings

2,535

2,026

Total liabilities and shareholders’ equity

>

Question 3 options:

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Question 4 (1 point) Question 4 Unsaved

ABC Company has been a wholesale distributor of automobile parts for domestic automakers for 20 years. ABC has suffered through the recent slump in the domestic auto industry, and its performance has not rebounded to the levels of the industry as a whole. ABC’s single-step income statement for the year ended November 30, 2011 follows:

ABC Company

Income Statement

For the Year Ended November 30, 2011 (thousands omitted)

Net sales $8,400

Expenses:

Cost of goods sold 6,300

Selling expense 780

Administrative expense 900

Interest expense 140

Total 8,120

Income before income taxes 280

Income taxes 112

Net income $ 168

ABC’s return on sales before interest and taxes was 5% in fiscal year 2011 compared with the industry average of 9%. ABC’s turnover of average assets of four times per year and return on average assets before interest and taxes of 20% are both well below the industry average.

Joe Kuhn, president of ABC, wishes to improve these ratios and raise them nearer to the industry averages. He established the following goals for ABC Company for fiscal year 2012:

Return on sales before interest and taxes 8%

Turnover of average assets 5 times per year

Return on average assets before interest and taxes 30%

For fiscal 2012, Kuhn and the rest of ABC’s management team are considering the following actions, which they expect will improve profitability and result in a 5% increase in unit sales:

1. Increase selling price 10%.

2. Increase advertising by $420,000 and hold all other selling and administrative expenses at

fiscal 2011 levels.

3. Improve customer service by increasing average current assets (inventory and accounts

receivable) by a total of $300,000, and hold all other assets at fiscal 2011 levels.

4. Finance the additional assets at an annual interest rate of 10% and hold all other interest

expense at fiscal 2011 levels.

5. Improve the quality of products carried; this will increase the units of goods sold by 4%.

6. ABC’s 2012 effective income tax rate is expected to be 40% – the same as in fiscal 2011.

a. Prepare a single-step pro forma income statement for ABC Company for the year ended

November 30,2012, assuming that ABC’s planned actions would be carried out and that the

5% increase in unit sales would be realized.

b. Calculate the following ratios for ABC Company for the 2011-2012 fiscal year and state

whether Kuhn’s goal would be achieved:

1. Return on sales before interest and taxes.

2. Turnover of average assets.

3. Return on average assets before interest and taxes.

4. Would it be possible for ABC Company to achieve the first two of Kuhn’s goals without

achieving his third goal of 30% return on average assets before interest and taxes? Explain

your answer.

Question 4 options: