Devr ACCT504 full course

Week 1: An Overview of Financial Statements and the Environment of Financial Reporting - Discussion

Financial Reporting Environment and GAAP (graded)

The discussion in this area will revolve around what accounting is, who the key parties in the financial reporting process are, the role of generally accepted accounting principles in the preparation of financial statements, and the regulatory environment of financial reporting in the U.S. The information being discussed here will be found partly in Chapter 1 and Chapter 2.

Let's begin by discussing what accounting is. Anybody?

Week 1: An Overview of Financial Statements and the Environment of Financial Reporting - Discussion

Details of Financial Statements and Ratios (graded)

In this thread, we will talk about the primary financial statements published by a corporation, the various classifications used in a balance sheet, the relationships among different financial statements, and how the numbers from the different financial statements are analyzed together to evaluate the financial position and performance of a company. The information being discussed here will be found partly in Chapter 1 and mostly in Chapter 2.

In order to keep our discussion organized, we will go according to the following plan:

1. Balance Sheet [We will begin with this statement]

2. Income Statement [We will begin this discussion on Wednesday morning]

3. Statement of Retained Earnings [We will begin this discussion on Thursday night]

4. Statement of Cash Flows [We will begin this discussion on Friday night]

5. Earnings Per Share, Current Ratio, and Debt to Total Assets [We will begin this discussion on Saturday night]

Let's begin by asking the question: What is the purpose of a Balance Sheet? What information does it provide?

week 2

Week 2: The Accounting Information System and Accrual Accounting Concepts - Discussion

Accounting Equation/Accounting Cycle (graded)

In this area, we will discuss the significance of the accounting equation, the rules of debit and credit, and the steps in the accounting cycle. We will talk about recording of transactions, normal balances, and the creation of the trial balance. Let's begin by asking this question: What is the role of the accounting equation in the analysis of business transactions? Week 2: The Accounting Information System and Accrual Accounting Concepts - Discussion Accrual Accounting and Adjusting Entries(graded) In this area, we will talk about the difference between cash-basis and accrual-basis accounting, the importance of revenue recognition and matching principles, and the role of adjusting and closing entries in the preparation of the income statement, statement of retained earnings, and balance sheet. How is cash-basis accounting different from accrual-basis accounting?

Week 3: Merchandising Operations and Inventory - Discussion

Merchandising Operations and Income Statements (graded)

In this area, we will discuss the accounting for inventory transactions of merchandising companies, the two formats of preparing the income statement, and how to evaluate the profitability of a merchandising company.

How is the income statement of a merchandising company different from that of a service company?

Week 3: Merchandising Operations and Inventory - Discussion

Inventory Cost-Flow Assumptions (graded)

In this area, we will talk about how companies determine the year-end inventory value and cost of goods sold using one of the cost-flow assumptions. We will also discuss the impact of choosing a certain cost-flow assumption on the tax liability and other financial statement numbers of a company. Finally, we will discuss how to analyze inventory numbers.

Why is inventory important for a business? How is inventory different from other assets of the business?

Week 4: Internal Control, Cash and Receivables - Discussion

Understanding Internal Control and Reporting Cash (graded)

In this thread, we will talk about the importance of internal control in a business organization and the definition and reporting of cash on the balance sheet.

What is internal control and what are the objectives of a good internal control structure in an organization?

Week 4: Internal Control, Cash and Receivables - Discussion

Accounting for and Reporting Receivables (graded)

Receivables constitute an important line item on a company's balance sheet. In this thread, we will discuss the accounting for receivables, the ways to estimate uncollectible accounts, and how companies manage their receivables.

How do companies account for the possibility that some of their customers might not pay down the road?

Week 5: Long-Lived Assets and Liabilities, and Time Value of Money - Discussion

Plant Assets and Intangibles (graded)

Companies have a significant amount of investment in long-lived assets, which include property, plant and equipment (commonly referred to as Plant Assets), and intangible assets.

Let's begin by talking about plant assets. Can you tell us what kind of plant assets are used in your company or place of business? Do you have an estimate of the amount invested in those plant assets?

Week 5: Long-Lived Assets and Liabilities, and Time Value of Money - Discussion

Accounting for Liabilities (graded)

In this area, we will discuss different types of liabilities and understand how to account for and report those liabilities.

Why are liabilities classified on a balance sheet as current and non-current? Who wants to know? What is the benefit of knowing this information?

Week 6: Stockholders' Equity and Statement of Cash Flows - Discussion

Accounting for and Reporting Equity (graded)

Stockholders' Equity is an important heading in a corporate balance sheet. Let's begin the discussion of stockholders' equity by asking: How is the stockholders' equity section of a corporate balance sheet different from that in a single-owner business? Anybody?

Week 6: Stockholders' Equity and Statement of Cash Flows - Discussion

Statement of Cash Flows (graded)

The statement of cash flows is an important financial statement that is required to be released along with the income statement and balance sheet by every publicly traded company. We did not have this requirement prior to the year 1988.

Let's begin our discussion by asking this question: When we already have the income statement and balance sheet to tell us about the financial performance and financial health of a company, why was there a need to require companies to prepare a statement of cash flows? Anybody?

Week 7: Financial Analysis: The Big Picture - Discussion

Issues in Income Reporting (graded)

By now, we all know that an income statement portrays the year-to-date performance of a business. However, the bottom-line figure in the income statement, i.e., net income, is influenced by what is reported in the statement under the categories of revenues and expenses. Therefore, readers of the income statement have to carefully examine the income statement in evaluating the future profitability of a business. What is the concept of sustainable income? Can you describe in your own words, without just reproducing the definition from the textbook? Can you give an example of what this number may look like by using the income statement of a real-life company? Week 7: Financial Analysis: The Big Picture - Discussion Different Tools for Financial Analysis (graded) There are different tools for analyzing the financial statements of a company, such as, horizontal analysis, vertical analysis, ratios for measuring financial health and profitability, etc. However, before we begin using these tools, it is important to know the purpose of each tool. Why do we need different tools for analyzing the financial statements? Don't the numbers in the financial statements speak for themselves?

ACCT 504 WEEK 7 COURSE PROJECT JCP KOHLS





Your Course Project

Financial Statement Analysis Project -- A Comparative Analysis
of Kohl’s Corporation and J.C. Penney Corporation

Below is the link for the financial statements for Kohl’s
Corporation for the 2010 fiscal year ending January 29, 2011. Under the term
Groupings Filter, change the term All Forms to Annual Filings using the
drop-down arrow and press Search.

You should then scroll down and select the 10k dated 3/18/2011
and choose to download in Word or PDF format.

http://www.kohlscorporation.com/InvestorRelations/sec-filings.htm

Below is the link for the financial statements for J.C. Penney
Corporation for the 2010 fiscal year ending January 29, 2011. Under the term
Groupings Filter, change the term All Forms to Annual Filings using the
drop-down arrow and press Search.

You should then scroll down and select the 10k dated 3/29/2011
and choose to download in Word format.

http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-sec

A sample Project template is available for download in Doc
Sharing. The sample project compares the ratio performance of Tootsie Roll and
Hershey using the 2009 financial statements of Tootsie Roll and Hershey
provided in Appendix A and Appendix B of your textbook.

Description

This course contains a course project where you will be required
to submit one draft of the Project at the end of Week 5 and the final completed
Project at the end of Week 7. Using the financial statements for Kohl’s
Corporation and J.C. Penney Corporation, respectively, you will calculate and
compare the financial ratios listed further down this documentfor
the fiscal year ending 2010and
prepare your comments about the liquidity, solvency and profitability of the
two companies based on your ratio calculations.The entire project will be graded by the
instructor at the end of the final submission in week 7 and one grade will be
assigned for the entire project.

Overall Requirements

For the Final Submission:

Your final Excel workbook submission should contain the
following. You cannot use any other software butExcelto complete this Project.

1) A completed worksheet title page tab which is really a cover
sheet with your name, the course, the date, your instructor’s name and the
title for the project.

2) A completed worksheet profiles tab which contains a one
paragraph description regarding each company with information about their
history, what products they sell, where they are located, etc.

3) All 18 ratios for each company with the supporting
calculations and commentary on your worksheet ratio tab. Supporting
calculations must be shown either as a formula or as text typed into a
different cell. The ratios are listed further down this document. Your comments
for each ratio should include more than just a definition of the ratio. You
should focus on interpreting each ratio number for each company and support
your comments with the numbers found in the ratios.

4) The Summary and Conclusions worksheet tab which is an overall
comparison of how each company compares in terms of the major category of
ratios (Liquidity, Profitability, and Solvency). A nice way to conclude is to
state which company you think is the better investment and why.

5) The Bibliography worksheet tab must contain at least your
textbook as a reference. Any other information you use to profile the companies
should also be cited as a reference.

Required Ratios for Final Project Submission

1) Earnings per Share

2) Current Ratio

3) Gross Profit Rate

4) Profit Margin Ratio

5) Inventory Turnover Ratio

6) Days in Inventory

7) Receivables Turnover Ratio

8) Average Collection Period

9) Asset Turnover Ratio

10) Return on Assets Ratio

11) Debt to Total Assets Ratio

12) Times Interest Earned Ratio

13) Payout ratio

14) Return on Common Stockholders’ Equity Ratio

15) Free Cash Flow

16) Current Cash Debt Coverage Ratio

17) Cash Debt Coverage Ratio

18) Price/Earnings Ratio [For the purpose of this ratio, for
both Kohl’s and J.C. Penney, use the market price per share on January 31,
2011]

The Excel files uploaded in the dropboxes should not
include any unnecessary numbers or information (such as previous years' ratios,
ratios that were not specifically asked for in the project, etc.).

Please upload your final submission to the Week 7 Dropbox by the
Sunday ending Week 7.

For the Draft:

Create an Excel spreadsheet or use the Project template to show
your computations for the first 12 ratios listed above. The more you can
complete regarding the other requirements the closer you will be to completion
when Week 7 arrives. Supporting calculations must be shown either as a formula
or as text typed into a different cell. If you plan on creating your own
spreadsheet, please follow the format provided in the Tootsie Roll and Hershey
template file.

Please upload your draft submission to the Week 5 Dropbox by the
Sunday ending Week 5.

Other Helpful information:

If you feel uncomfortable with Excel, you can find many helpful references
on Excel by performing a Google search.

The Appendix to Chapter 13 contains ratio calculations and
comparison comments related to Kellogg and General Mills so you will likely
find this information helpful.

BigCharts.com provides historical stock quotes.

Either APA or MLA style can be used to complete the references
on your Bibliography tab. There is a tutorial for APA and MLA style within the
syllabus.

Case Study 1 (Part A)

P2-69B

(Learning Objectives 4, 5, 6: 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 operations, Johnson Plumbing, Inc., completed the following transactions:

Mar 2	Johnson received $35,000 cash and issued common stock to the stockholders.
3	Purchased supplies, $200, and equipment, $3,200, on account.
4	Performed services for a client and received cash, $1,400.
7	Paid cash to acquire land, $24,000.
11	Performed services for a customer and billed the customer, $800. Johnson expects to collect within one month.
16	Paid for the equipment purchased March 3 on account.
17	Paid the telephone bill, $150.
18	Received partial payment from customer on account, $400.
22	Paid the water and electricity bills, $170.
29	Received $1,500 cash for repairing the pipes of a customer.
31	Paid employee salary, $1,800.
31	Declared and paid dividends of $2,100.

?Requirements

• 1. Record each transaction in the journal. Key each transaction by date. Explanations are not required.
• 2. Post the transactions to the T-accounts, using transaction dates as posting references.
• 3. Prepare the trial balance of Johnson Plumbing, Inc., at March 31 of the current year.
• 4. The manager asks you how much in total resources the business has to work with, how much it owes, and whether March was profitable (and by how much).

Case Study 1 (Part B)

P3-77B

(Learning Objectives 3, 4: Adjust the accounts; construct the financial statements) Consider the unadjusted trial balance of Princess, Inc., at August 31, 2012, and the related month-end adjustment data.

Adjustment data at August 31, 2012, include the following:

• a. Accrued advertising revenue at August 31, $2,100.
• b. Prepaid rent expired during the month. The unadjusted prepaid balance of $2,100 relates to the period August 2012 through October 2012.
• c. Supplies used during August, $2,090.
• d. Depreciation on furniture for the month. The furniture’s expected useful life is three years.
• e. Accrued salary expense at August 31 for Monday, Tuesday, and Wednesday. The five-day weekly payroll is $5,100 and will be paid on Friday.

Top of Form

Page to the specified printed page number

Bottom of Form

Activate the following button to retrieve the URL to cite or link to this page

Case Study 3

P4-55A

(Learning Objective 5: Construct and use a cash budget) Nathan Farmer, chief financial officer of Bosworth Wireless, is responsible for the company’s budgeting process. Farmer’s staff is preparing the Bosworth cash budget for 2013. A key input to the budgeting process is last year’s statement of cash flows, which follows (amounts in thousands):

? Requirements

• 1. Prepare the Bosworth Wireless cash budget for 2013. Date the budget simply “2013” and denote the beginning and ending cash balances as “beginning” and “ending.” Assume the company expects 2013 to be the same as 2012, but with the following changes:
• a. In 2013, the company expects a 15% increase in collections from customers and a 24% increase in purchases of inventory.
• b. There will be no sales of investments in 2013.
• c. Bosworth plans to issue no stock in 2013.
• d. Bosworth plans to end the year with a cash balance of $3,550.

Case Study 2

Due by Sunday of Week 5, 11:59 p.m., Mountain time

P4-57B

(Learning Objectives 2, 4: Explain the components of internal control; evaluate internal controls) Each of the following situations reveals an internal control weakness:

Situation a. In evaluating the internal control over cash payments of Yankee Manufacturing, an auditor learns that the purchasing agent is responsible for purchasing diamonds for use in the company’s manufacturing process, approving the invoices for payment, and signing the checks. No supervisor reviews the purchasing agent’s work.

Situation b. Rachel Williams owns an architectural firm. Williams’ staff consists of 19 professional architects, and Williams manages the office. Often, Williams’ work requires her to travel to meet with clients. During the past six months, Williams has observed that when she returns from a business trip, the architecture jobs in the office have not progressed satisfactorily. Williams learns that when she is away, two of her senior architects take over office management and neglect their normal duties. One employee could manage the office.

Situation c. Mike Dolan has been an employee of the City of Southport for many years. Because the city is small, Dolan performs all accounting duties, in addition to opening the mail, preparing the bank deposit, and preparing the bank reconciliation.

Top of Form

? Requirements

• 1. Identify the missing internal control characteristic in each situation.
• 2. Identify each firm’s possible problem.
• 3. Propose a solution to the problem.

Bottom of Form

Category

Points

Description

Understanding

10

Demonstrate a strong grasp of the problem at hand. Demonstrate understanding of how the course concepts apply to the problem.

Analysis

30

Apply original thought to solving the business problem. Apply concepts from the course material correctly toward solving the business problem.

Execution

10

Write your answer clearly and succinctly using strong organization and proper grammar. Use citations correctly.

Total

50

A quality paper will meet or exceed all of the above requirements.

midterm

Multiple Choice 10 9

Essay 4 N/A

Grade Details - All Questions

Question 1. Question : (TCOs A, B, and C) Which of the following statements concerning users of accounting information is incorrect?

The marketing vice president is considered an internal user.

Present and prospective creditors are considered external users.

Regulatory authorities, such as the SEC, are considered internal users.

The IRS is considered an external user.

Question 2. Question : (TCO C) Paying back long-term debt is an example of a(n)

non-cash investing activity.

investing activity.

financing activity.

operating activity.

:

Question 3. Question : (TCO A) Resources owned by a business are referred to as

revenues.

dividends.

liabilities.

assets.

Question 4. Question : (TCO A) On a classified balance sheet, prepaid expenses are classified as

property, plant, and equipment.

long-term investments.

intangible assets.

current assets.

Question 5. Question : (TCO B) For 2012, LBJ Corporation reported net income of $40,000; net sales $1,400,000; and weighted average shares outstanding of 10,000. There were no preferred stock dividends. What was the 2012 earnings per share?

$4.00

$2.00

$14.00

$140.00

Question 6. Question : (TCO D) Which of the following describes the normal balance and classification of the dividends account?

debit, Expense

credit, Liability

debit, Stockholders' equity

debit, Asset

Question 7. Question : (TCO E) The accrual accounting term used to indicate an item paid in advance or the receipt of cash in advance is

prepayment.

depreciation.

deferral.

accrual.

Question 8. Question : (TCOs A and B) A perpetual inventory system would most likely be used by a(n)

restaurant.

hardware store.

automobile dealership.

mom and pop convenience store.

Question 9. Question : (TCOs A and B) LBJ Company recorded the following events involving a recent purchase of merchandise.

- Received goods for $100,000, terms 2/10, n/30

- Returned $5,000 of the shipment for a credit due to damaged goods

- Paid $1,500 for freight in

- Paid the invoice within the discount period

As a result of these events, the company's merchandise inventory

increased by $96,500.

increased by $95,000.

increased by $94,500.

increased by $94,600.

Question 10. Question : (TCO A) In periods of rising prices, which of the following inventory methods results in the lowest income taxes?

FIFO method

Average cost method

LIFO method

Cannot determine based on the information given

Question 11. Question : (TCO D) Describe the process of preparing a trial balance. What is the purpose of preparing a trial balance? If a trial balance does not balance, identify what might be the reasons why it does not balance. If the trial balance does balance, does that ensure that the ledger accounts are correct? Explain.

Question 12. Question : (TCOs B and E) The Caltor Company gathered the following condensed data for the Year Ended December 31, 2010.

Cost of goods sold $ 710,000

Net sales 1,279,000

Administrative expenses 239,000

Interest expense 68,000

Dividends paid 38,000

Selling expenses 45,000

Instructions:

1: Prepare a multiple-step income statement for the year ended December 31, 2010.

2: Compute the profit margin ratio and gross profit rate. Caltor Company’s assets at the beginning of the year were $770,000 and were $830,000 at the end of the year. To qualify for full credit, you must state the formula you are using, show your computations, and explain your findings.

Question 13. Question : (TCO D and E) Please prepare the following journal entries. Indicate which account should be debited and which account should be credited, along with the dollar amount of the debit and credit.

a: Investors invest $600,000 in exchange for 30,000 shares of common stock.

b: Company paid rent of $3,000.

c: Company billed $5,000 for services performed.

d: Company purchased supplies of $3,000.

e: Company received $20,000 for services not yet performed.

Question 14. Question : (TCO D) Your friend Dean has hired you to evaluate the following internal control procedures.

a: Explain to your friend whether each of the numbered items below is an internal control strength or weakness. You must also state which principle relates to each of the internal controls.

b: For the weaknesses, you also need to state a recommendation for improvement.

1: Bonding of the cashiers is not required because all of the cashiers have significant experience.

2: The treasurer is the only one allowed to sign checks.

3: All employees may operate cash registers.

4: Blank checks are stored in the safe.

5: Supervisors count cash receipts daily.

ACC504 Week8 Final Exam - PART 1 and PART 2

Week8 Final Exam

Question 1 (TCO A) An advantage of the corporate form of business is _____. (Points : 5)

it is simple to establish

the corporate tax rate is less than the personal tax rate

corporations must pay dividends

the shareholders are not responsible for the corporation’s debts

Question 2 (TCO A) Which one of the following statements is correct with regard to Dividends?

(Points : 5)

Dividends are increased by credits.

Dividends are subtracted on the Income Statement.

Common stock dividends are required to be paid.

Dividends reduce stockholders’ equity.

Question 3 (TCOs A, B) Below is a partial list of account balances for LBJ Company:

Cash $12,000

Prepaid insurance 1,300

Accounts receivable 7,000

Accounts payable 5,000

Notes payable 9,000

Common stock 22,000

Dividends 2,000

Revenues 45,000

Expenses 35,000

What did LBJ Company show as total debits? (Points : 5)

$57,300

$81,000
$55,300
$56,000

Question 4 (TCOs B, E) Which of the following statements is incorrect with regard to accrual accounting? (Points : 5)

Accrual accounting is consistent with the matching principle.

Accrual accounting does not record expenses until they are paid.

Accrual accounting is more complex than cash basis accounting.

Accrual accounting is required by GAAP.

Question 5 (TCO D) Three different companies each utilize a different inventory costing method. If the price of goods has increased during the period, then the company using _____. (Points : 5)

FIFO will have the highest ending inventory

FIFO will have the highest cost of goods sold

LIFO will have the lowest cost of goods sold

LIFO will have the highest ending inventory

Question 6 (TCOs A, E) Equipment was purchased for $85,000. Freight charges amounted to $2,550 and there was a cost of $10,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $5,000 salvage value at the end of its 6-year useful life. Depreciation expense each year using the straight-line method will be _____. (Points : 5)

$13,333
$16,258
$15,425
$13,578

Question 7 (TCOs D, G) When the market rate of interest is equal to the stated rate of interest on the bond, the bond will require _____. (Points : 5)

a debit to Discount on Bonds Payable

a credit to Discount on Bonds Payable

a credit to Bonds Payable

a debit to Bonds Payable

Question 8 (TCO C) Accounts receivable arising from sales to customers amounted to $50,000 and $45,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $150,000. Based on these transactions, the cash flows from operating activities to be reported on the statement of cash flows would be _____. (Points : 5)

$195,000
$145,000
$115,000
$155,000

Question 9 (TCO F) Which one of the following tools uses the percentage change formula to make year-over-year comparisons of sales growth? (Points : 5)

Horizontal analysis

Common-size analysis

Vertical analysis

Ratio analysis

Question 10 (TCO F) When performing a common-size Income Statement, the 100% figure is _____. (Points : 5)

net sales

total liabilities plus stockholders’ equity

net income

total assets

Question 11 (TCO F) Ratios are most useful in expressing _____. (Points : 5)

cause-and-effect relationships

the relationships between numbers

the delta between numbers

the root cause of the problem

Question 12 (TCO F) Creditors are usually most concerned with analyzing _____. (Points : 5)

the company stock price

turnover
liquidity
profitability

Question 13 (TCO F) Shareholders are usually most interested in evaluating _____. (Points : 5)

profitability
leverage
turnover
the ability to pay debts as they come due

Question 14 (TCO G) To calculate the market value of a bond, we need to _____. (Points : 5)

multiply the stated rate times the bond’s face value

calculate the present value of the principal only

calculate the present value of both the principal and the interest

calculate the present value of the interest only

Page 2
Question 1. (TCO A) Below you will find selected information (in millions) from Coca-Cola Co.’s 2012 Annual Report:

Income Taxes Payable	$471
Short-term Investments and Marketable Securities	8,109
Cash	8,442
Other non-current Liabilities	10,449
Common Stock	1,760
Receivables	4,812
Other Current Asset	2,973
Long-term Investments	10,448
Other Non-current Assets	3,585
Property, Plant and Equipment	23,486
Trademarks	6,527
Other Intangible Assets	20,810
Allowance for Doubtful Accounts	53
Accumulated Depreciation	9,010
Accounts Payable	8,680
Short Term Notes Payable	17,874
Prepaid Expenses	2,781
Other Current Liabilities	796
Long-Term Liabilities	14,736
Paid-in-Capital in Excess of Par Value	11,379
Retained Earnings	55,038
Inventories	3,264
Treasury Stock	35,009

Other information taken from the Annual Report:

Sales Revenue for 2012	$48,017
Cost of Goods Sold for 2012	19,053
Net Income for 2012	9,019
Inventory Balance on 12/31/11	3,092
Net Accounts Receivable Balance on 12/31/11	4,920
Total Assets on 12/31/11	79,974
Equity Balance on 12/31/11	31,921

Required:
1. Using the information provided prepare a Balance Sheet. Separate the current assets from non-current assets and provide a total for each. Also separate the current liabilities from the non-current liabilities and provide a total for each.

2. Using the Balance Sheet from your answer above, calculate the Current Ratioand Return on common stockholders’ equity ratio. (Make sure to show all your work). (Points : 36)

Question 2(TCO B) The following selected data was retrieved from the Walmart, Inc. financial statements for the year ending January 31, 2013:

Accounts Payable	$38,080
Accounts Receivable	6,768
Cash	7,781
Common Stock	3,952
Cost of Goods Sold	352,488
Income Tax Expense	7,981
Interest Expenses	2,064
Membership Revenues	3,048
Net Sales	466,114
Operating, Selling and Administrative Expenses	88,873
Retained Earnings	72,978

Required:
Using the information provided above:

1. Prepare a multiple-step income statement

2. Calculate the Profit Margin, and Gross profit rate for the company. Be sure to provide the formula you are using, show your calculations, and discuss your findings/results. (Points : 36)

Question 3(TCO C) Please review the following real-world Hewlett Packard Statement of Cash flows and address the two questions below:

Cash flow from operating activities	In millions	In millions
	For the year ended 2012	For the year ended 2011
Net (loss) earnings	$(12,650)	$7,074
Depreciation and amortization	5,095	4,984
Impairment of goodwill and purchased intangible assets	18,035	885
Stock-based compensation expense	635	685
Provision for doubtful accounts	142	81
Provision for inventory	277	217
Restructuring charges	2,266	645
Deferred taxes on earnings	(711)	166
Excess tax benefit from stock-based competition	(12)	(163)
Other, net	265	(46)
Accounts and financing receivables	1,269	(227)
Inventory	890	(1,252)
Accounts payable	(1,414)	275
Taxes on earnings	(320)	610
Restructuring	(840)	(1,002)
Other assets and liabilities	(2,356)	(293)
Net cash provided by operating activities	10,571	12,639
Cash flows from investing activities:
Investment in property, plant, and equipment	(3,706)	(4,539)
Proceeds from sale of property, plant, and equipment	617	999
Purchases of available-for-sale securities and other investments	(972)	(96)
Maturities and sales of available-for-sale securities and other investment	662	68
Payments in connection with business acquisitions, net of cash acquired	(141)	(10,480)
Proceeds from business divestiture, net	87	89
Net cash used in investing activities	(3,453)	(13,959)
Cash flow from financing activities:
(Payments) issuance of commercial paper and notes payable, net	(2,775)	(1,270)
Issuance of debt	5,154	11,942
Payment of debt	(4,333)	(2,336)
Issuance of common stock under employee stock plans	716	896
Repurchase of common stock	(1,619)	(10,117)
Excess tax benefit from stock-based compensation	12	163
Cash dividends paid	(1,015)	(844)
Net cash used in financing activities	(3,860)	(1,566)
Increase (decrease) in cash and cash equivalents	3,258	(2,886)
Cash and cash equivalents at beginning of period	8,043	10,929
Cash and cash equivalents at end of period	$11,301	$8,043

Required:

1) Please calculate the percentage increase or decrease in cash for the total line of the operating, investing, and financing sections bolded above and explain the major reasons for the increase or decrease for each of these sections.

2) Please calculate the free cash flow for 2012 and explain the meaning of this ratio. (Points : 36)

Question 4. (TCO D) You are CFO of Goforit, Inc., a wholesale distribution company specializing in emerging technologies. Your CEO is a brilliant marketer, but relies on you to explain issues and choices in accounting and finance. She has heard from other members of a CEO organization to which she belongs that a company’s net income can vary widely depending on which accounting choices are made from the “GAAP menu.”

Assuming the goal is to maximize net income, choose an accounting treatment from each of the following scenarios, and explain to your CEO why the choice will produce the desired effect on reported Net Income for the current year. Include in your answer the effect of the choice on both the income statement and balance sheet.

Required:

a. Goforit carries significant electronics inventory in a competitive environment in which prices are actually falling. Which inventory valuation method would you choose—LIFO, FIFO, or average cost? Assume that unit purchases exceed unit sales.

b. Goforit has a large investment in warehouse equipment, including conveyor belts, forklifts, and automated packaging systems. Which depreciation method would you choose: straight line (SL) or double declining balance (DDB)? (Points : 36)

Question 5. (TCO F) Please review the following real-world ratios for Johnson & Johnson and Pfizer for the year ended 2012 and address the 2 questions below.

Ratio Name	Johnson & Johnson	Pfizer
Profit margin	16.1%	24.7%
Inventory turnover ratio	3.1	1.7
Average collection period	59.4 days	69.1 days
Cash debt coverage ratio	.27	.16
Debt to Total assets	46.6%	127.5%

Required:

1) Please explain the meaning of each of the Pfizer ratios above.

2) Please state which company performed better for each ratio.(Points : 36)

Ratio Name Johnson & Johnson Pfizer Comment Profit margin 16.1% 24.7% Inventory turnover ratio 3.1 1.7 Average collection period 59.4 days 69.1 days Cash debt coverage ratio .27 .16 Debt to Total assets 46.6% 127.5%