ACG 2021 Study Guide - Quiz Guide: Intangible Asset, Junkers F.13, Historical Cost

1. Apply to actual companies the basic knowledge and analytical techniques learned from our course.

2. Prepare common-size financial statements, comparative financial statements, and various profitability and risk ratios.

3. Compare the calculated results with competitors and across different years.

4. Summarize the analyses and make investment recommendations.

You will be analyzing the following firms:

Williams-Sonoma, Inc.

Pier 1 Imports, Inc.

For these firms, download the most recent annual report (10-K report) to begin your work. In 10-K reports, you can find companies’ basic information, financial statements, footnotes to the financials, and the management discussions and analyses. Please download the 10-K reports from the following web links:

10-K reports (fiscal year 2016) for Williams-Sonoma, Inc.

https://www.sec.gov/Archives/edgar/data/719955/000119312517104341/d265187d10k.htm

10-K reports (fiscal year 2015) for Williams-Sonoma, Inc.

https://www.sec.gov/Archives/edgar/data/719955/000119312516525847/d120289d10k.htm

10-K reports (fiscal year 2014) for Williams-Sonoma, Inc.

https://www.sec.gov/Archives/edgar/data/719955/000119312515118009/d851953d10k.htm#tx851953_13

10-K reports (fiscal year 2016) for Pier 1 Imports, Inc.

https://www.sec.gov/Archives/edgar/data/278130/000119312517136345/d343458d10k.htm

10-K reports (fiscal year 2015) for Pier 1 Imports, Inc.

https://www.sec.gov/Archives/edgar/data/278130/000119312516556025/d133529d10k.htm

10-K reports (fiscal year 2014) for Pier 1 Imports, Inc.

https://www.sec.gov/Archives/edgar/data/278130/000119312515153179/d881010d10k.htm#toc881010_13

For your convenience, I also provided the balance sheet and income statement of each company for the most recent years at the end (page 5-8; Table 1-4). Please use them to prepare common-size financial statements and comparative financial statements.

Guidance

The required tasks are detailed below:

(1) Prepare common-size balance sheets and income statements for both companies. Note: Compute for the most recent THREE years.

(2) Prepare comparative analysis (i.e., change of percentage analysis) on income statement and balance sheet for both companies. You should compute for the most recent THREE years.

(3) Prepare ratio analyses (for the same THREE year time period) for both companies. At least, you should include the following ratios in your computations: (1) current ratio, (2) acid-test ratio, (3) receivables turnover, (4) inventory turnover, (5) asset turnover, (6) profit margin on sales, (7) rate of return on assets, (8) rate of return on common stock equity, (9) earnings per share, (10) payout ratio, (11) debt to total assets ratio, (12) times interest earned, (13) cash debt coverage ratio, and (14) book value per share.

(4) Comment on the analytical results of the two companies. Your comments should concentrate on the trends across the companies. In addition to contrasting the ratios between the companies, you should interpret the numbers and make suggestions as to why the ratio of one company might be higher/lower than the other.

(5) Write a conclusive summary on the firms you have studied. Based upon your conclusions, recommend the better performing firm for potential investment. Your conclusions should be based upon, and specifically reference, the analyses prepared in this report.

(6) Read sample project to get some ideas.

Report Format Requirements:

A. Report body requirements:

Cover page. List the title of the project, your names, and semester/year.

Abstract or Executive Summary. This is a separate page. It should cover the purpose of the project, the major findings, and the conclusions/recommendations, in summary form.

Table of Contents.

Main body. Use the following sequence for report content:

Introduction to the two companies and to the purpose of the report

Analytical section. This should include all your numerical analyses. This is where you will discuss the results of, comments on, and conclusions about the vertical and horizontal common-size statements, comparative analysis (i.e., change of percentage analysis), and the ratio analyses for both companies.

Comparisons of companies and all other analysis (observations and/or interpretations). (You may combine b and c if you wish, as long as both are well covered.)

Conclusions and recommendation for investment.

References. List all major reference sources.

Appendices. Include tables and graphs of your numerical analyses. For reference convenience, assign a title to each separate item, such as Table 1, Exhibit 1, etc.

B. Typesetting requirements:

Use size 12 font. Times New Roman is preferred.

Double space between lines.

Number pages in accordance with the APA style guide.

One inch on all sides.

Do not right justify text. Use left justify.

Minimum length: 8 pages. (Note: You can easily meet the minimum length requirement since you will have a lot of tables in the paper.)

The submitted work should be in ONE file with a word or pdf format. An Excel spreadsheet file is NOT acceptable.

Plagiarism

Plagiarism will not be tolerated. Evidence of plagiarism will result in a grade of “F” to the course and be subject to appropriate disciplines.

NOTES:

A portion of your grade will be assessed based on the overall report quality, clarity, format, and cohesiveness.

A FREE RIDER in the group will not be tolerated. However, to report an alleged free rider, you should send me a formal written complaint. You should carefully manage your group over the semester to ensure that no teammate will take the chance of turning into a free rider. Try to contact/manage your teammates frequently and inform me if any member is not willing to participate the group work so we can address this issue ASAP. A free rider will receive his/her group project grades solely based on what he/she has contributed to the projects. If there is a free-rider in your group or a member drops the class, the rest of the group members are still expected to submit a COMPLETE paper.

Again, the balance sheet and income statements are provided at the end. Please use them to prepare common-size and comparative financial statements.

Table 1. Williams-Sonoma, Inc ----Balance Sheet

Table 2. Williams-Sonoma, Inc --- Statement of Income

Field trip assignment (5 points) to look up Facebook 10-K Go towww.sec.gov, choose “search EDGAR for company filings” and thensearch by “Company or Fund Name,…..” Use the search by company name“Facebook”. Enter “Filing type” 10-K, hit the “Search” button, andthen choose “documents” tab under “Format” for the filing dated2017-02-03. Click the first “.htm” file under the “Document” columnto open the 10-k file. Hint: choose Document 1. 1. Before youbegin, read the following summary of the10-k prepared by the SECfor investors: http://www.sec.gov/investor/pubs/reada10k.pdf (openin a new window so you don’t get kicked out of MyGateway and if thelink doesn’t work, search for “Investor Bulletin: How to Read a10-K” on google and it will come up). No points here, just a greathelp. 2. After you open up the 10-K file, you will see “FORM 10-K”and “FACEBOOK, INC.” to make sure you are reading the correctdocument. Then scroll down to find the “table of contents” toquickly find the items below. One of the highlighted items in theTable of Contents contains information that has to be prepared inaccordance with GAAP, as opposed to being information required bythe SEC outside of GAAP. Which item? (0.5 point) 3. Click on“Financial Statements and Supplementary Data” to find the “Index toConsolidated Financial Statements” and then choose “Notes to theConsolidated Financial Statements”. What does the term“consolidated” mean – based on your reading of Note 1 (in yourwords, no textbook or Wikipedia definitions)? (0.5 point) 4.Continue with the “Summary of Significant Accounting Policies” note– Note 1. a. Find the discussion of the Use of Estimates. Name 2places in the financial statements where estimates are relied upon.(0.5 points) b. Find the discussion of Revenue. What are the namedsources of revenue? (0.5 point) c. Find the discussion of Propertyand Equipment. What depreciation method is used for assets? (0.5point) 5. Scroll up to the page before Consolidated Balance Sheets.This is the Report of the Independent Auditors. Read the auditopinion. What responsibility do the auditors take regarding thefinancial statements? (0.5 point) 6. Is the Facebook audit opinion“unqualified” (use your book for help if you don’t remember fromyour reading –chapter 3)? (1 point) 7. What opinion the auditorsgave to Facebook’s internal controls? (0.5 point) 8. (0.5 point) Atbeginning of the Management Discussion and Analysis section – Whatinformation are highlighted as non-GAAP? 9. In the “Financialresults:” section, does revenue on non-GAAP basis show a higheryear-to-year growth? 10. Is MD&A neutral and prepared inaccording to GAAP?

Jennifer Lopez opened a school for administrative skills called Lopez Office Training and completed the following transactions:

a. Contributed the following assets to the business:

b. Found a location for her business and paid the first month’s rent, $260.

c. Paid for an advertisement announcing the opening of the school, $190.

d. Received applications from three students for a four-week administrative program and two students for a ten-day keyboarding course. The students will be billed a total of $1,300.

e. Purchased supplies on credit, $330.

f. Billed the enrolled students, $1,740.

g. Purchased a second-hand computer, $480, and office equipment, $380, on credit.

h. Paid for the supplies purchased on credit in e, $330.

i. Paid cash to repair a broken computer, $40.

j. Received partial payment from students previously billed, $1,080.

k. Paid the utility bill for the current month, $90.

l. Paid an assistant one week’s salary, $440.

m. Made a cash withdrawal of $300.

Hint(s)

1. Record the transactions directly in the T accounts, using the transaction letter to identify each debit and credit. Enter in the order presented above.

Hint(s)