You are on page 1of 6

CASES AND PROJECTS

ANNUAL REPORT CASES


CP11. 1. 2. 3. It sells laidback apparel, accessories, outerwear, and footwear for teens and young adults. The companys most recent fiscal year ended on February 3, 2007. a. Balance Sheets2 years b. Income Statements3 years c. Cash Flow Statements3 years Yes, it is audited by independent CPAs, as indicated by the Report of Independent Registered Public Accounting Firm on page 61 of the annual report. Its total assets increased from $1,605,649,000 to $1,987,484,000. The instructor should note that the reported numbers are in thousands. As of February 3, 2007, the company had $263,644,000 in inventory. Assets $1,987,484,000 = Liabilities* = $570,172,000 + Stockholders Equity + $1,417,312,000

4. 5. 6. 7.

*Liabilities are determined by either adding current ($460,464,000) and long term liabilities ($109,708,000) or by solving the accounting equation: Assets ($1,987,484,000) = Liabilities + Stockholders Equity ($1,417,312,000) CP12. 1. Net income was $116,206 thousand or $116,206,000 for the year ended January 31, 2007. This is disclosed on the income statement. The instructor should note that the reported numbers are in thousands. Some students will erroneously report income as $116,206. Students should also be warned that different companies often use different terminologysome companies may use the term net earnings to describe net income. 2. 3. 4. 5. Net sales were $1,224,717,000. This is also disclosed on the income statement. Inventory is $154,387,000. This is disclosed on the balance sheet. Cash and cash equivalents decreased by $22,645,000 during the year. This amount can be computed from the balance sheet or it can be found on the statement of cash flows.

The auditor is Deloitte & Touche, LLP. This is found on the auditors report (in this case, called the report of independent registered public accounting firm).

CP13. 1. American Eagle Outfitters had total assets of $1,987,484,000 at the end of the most recent year, whereas Urban Outfitters had total assets of $899,251,000. Clearly American Eagle Outfitters is the larger of the two companies in terms of total assets at the end of the most recent year. 2. Urban Outfitters had net sales of $1,224,717,000 in the most recent year, while American Eagle Outfitters had greater net sales in the amount of $2,794,409,000. Again, American Eagle Outfitters is the larger of the two companies in terms of net sales. 3. In the most recent year, Urban Outfitters had growth in total assets of ($899,251,000 - $769,205,000)/ ($769,205,000) = 16.9%, but American Eagle Outfitters had higher growth in total assets of ($1,987,484,000 $1,605,649,000)/($1,605,649,000) = 23.8%. Similarly, Urban Outfitters had growth in net sales of ($1,224,717,000 - $1,092,107,000)/($1,092,107,000) = 12.1%, but American Eagle Outfitters had greater growth in net sales of ($2,794,409,000 - $2,321,962,000)/($2,321,962,000) = 20.3%. By both measures, American Eagle Outfitters is growing faster.

FINANCIAL REPORTING AND ANALYSIS CASES


CP14. Req. 1Deficiencies: (1) (2) (3) (4) (5) (6) (7) (8) Heading: titles of the reports are missing and dates are not in proper form. Income statement should show revenues and expenses separately. Profit earned in 2009 should be Net income. Balance sheet should separately report assets, liabilities, and stockholders' equity. Retained earnings, $30,000, should be reported under stockholders' equity. Due from customers, $13,000, should be reported under assets. Supplies on hand, $15,000, should be reported under assets. Accumulated depreciation, $10,000, should be subtracted from service vehicles.

CP14. (continued) Req. 2Financial Statements: PERFORMANCE CORPORATION Income Statement For the Year Ended December 31, 2009 Revenues: Sales Services Total revenues Expenses: Cost of goods sold Selling expenses Depreciation expense Salaries and wages Total expenses (excluding income tax) Pretax income Income tax expense (25% x $40,000) Net income $175,000 $227,000 $ 90,000 25,000 10,000 187,000 10,000 $40,000 $30,000

52,000

62,000

PERFORMANCE CORPORATION Balance Sheet At December 31, 2009 Assets: Cash Merchandise inventory (for resale) Supplies inventory (for use in rendering services) Accounts receivable (from customers) Service vehicles Less accumulated depreciation Total assets Liabilities: Accounts payable (to suppliers) Note payable (to bank) Total liabilities Stockholders' equity: Contributed capital, 6,500 shares Retained earnings Total stockholders' equity Total liabilities and stockholders' equity

42,000 15,000 (10,000) $50,000 13,000 40,000

$ 32,000

$142,000 $22,000 25,000 47,000 $65,000 30,000 $142,000

95,000

CRITICAL THINKING CASES


CP15. Req. 1 You should forcefully assert the need for an independent audit of the financial statements each year because this is the best way to assure credibilityconformance with GAAP, completeness and absence of bias. You should firmly reject Uncle Ray as the auditor because there is no evidence about his competence as an accountant or auditor. Also, he is related to the partner who prepares the financial statements; there is a conflict of interest. Req. 2 You should strongly recommend the selection of an independent CPA in public practice because the financial statements should be audited by a competent and independent professional who must follow prescribed accounting and auditing standards on a strictly independent basis. An audit by Uncle Ray would not meet any of these requisites, particularly the important one in this caseindependence (and absence of bias).

You might also like