ACCT 001 Lecture Notes - Lecture 5: Southwest Airlines, Deferred Income, Current Liability

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blackpig616

29 May 2020

School

College of The Sequoias

Department

Accounting (ACCT)

Course

ACCT 001

Professor

williams

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Document Summary

Current liabilities are due within one year vs. long term liabilities are due more than one year from now. Operating cycle time it takes to produce revenue. If operating cycle is longer than a year, company records its current liabilities by operating cycle instead of the length of a year. But usually current liabilities are due within a year. Commercial paper: borrowing from another company rather than borrowing from the bank: recording is same as notes payable, interest rate is usually lower than on a bank loan. Usually current liabilities due within a year. Occurs when companies owe suppliers of merchandise or services that it has bought on credit. Deferred revenue: cash received in advance from a customer for a good or service not yet provided i. e. flight tickets (airline companies wait till the actual flight occurs to record the revenues) When flights have not taken place- airline has not yet earned the revenue (liability)

Related Questions

1, Commonly, current liabilities are payable within one year and long-term liabilities are payable more than one year from now. True or False

2, Given a choice, most companes would prefer to report a liability as current rather than long-term because it may cause the firm to appear less risky T or F

3, If company borrows from another company rather than from a bank, the note is referred to as commercial paper. T or F

4, Sales taxes collected from customers by seller are not an expense, instead they represent current liabilities payable to the govermant T or F

5, The balance in the estimated warranty liability account is always equal to warranty expense. T or F

6, We record gain contingencies when the gain is probable and can be reasonable estimated. T or F.

7, An employee has gross earning of $1,600 and withholding of $25 for income taxes, $5 for social security taxes and $3 for medicare taxes. The employer also pays a total of $5 for social securty and $3 for medicare taxes, $12 for SUTA. What is the total cost of this employer to the employer? Assume no other infomation.

coppercaribou27

Hands-On Project 10-12

IMPROVING DECISION MAKING: USING SPREADSHEET SOFTWARE TO ANALYZEA DOT- COM BUSINESS

Software skills: Spreadsheet downloading, formatting, andformulas

Business skills: Financial statement analysis 10- 12

Pick one e- commerce company on the Internetâ for example,Ashford, Buy. com, Yahoo, or Priceline. Study the Web pages thatdescribe the company and explain its purpose and structure. Use theWeb to find articles that comment on the company. Then visit theSecurities and Exchange Commissionâs Web site at www. sec.gov to access the companyâs 10- K ( annual report) formshowing income statements and balance sheets. Select only thesections of the 10- K form containing the desired portions offinancial statements that you need to examine, and download theminto your spreadsheet. Instructions below provide more detailedinstructions on how to download this 10- K data into a spreadsheetand information on financial statements. Create simplifiedspreadsheets of the companyâs balance sheets and income statementsfor the past three years.

â¢ Is the company a dot- com success, borderline business, orfailure? What information provides the basis of your decision? Why?When answering these questions, pay special attention to thecompanyâs three- year trends in revenues, costs of sales, grossmargins, operating expenses, and net margins.

â¢ Prepare a PowerPoint overhead presentation (with a minimum offive slides), including appropriate spreadsheets or charts, andpresent your work to your professor and classmates. An examplePowerPoint slide presentation is attached for your review in thislearning module folder in Blackboard.

As needed: Students can find material on understanding financialstatements on financial Web sites such as Ameritrade(www.ameritrade.com) or the Small Business Knowledge Basehttp://www.bizmove.com/finance/m3b2.htm.

Downloading the Data into a Spreadsheet

Use the Convert Text to Columns Wizard in your spreadsheetsoftware to arrange the 10-K data you downloaded into spreadsheetcolumns and rows. From the Excel menu, select Data and then selectthe Text to Columns option. The software brings up a Wizard toconvert the imported text into spreadsheet columns. Although youcan decide to create line breaks, it may be easiest to accept thedefault settings (Fixed Width, General format) and then adjustcolumn widths after the Wizard has arranged the data in spreadsheetcolumns.

Financial Statements

Financial statements are used to evaluate the performance of abusiness and diagnose its strengths and weaknesses. The two primaryfinancial statements are income statements and balance sheets. Theincome statement, also called an operating statement or profit andloss statement, shows the income and expenses of a firm over aperiod of time, such as a year, a quarter, or a month. Gross profitis calculated by subtracting the cost of goods sold from revenues,or sales. The gross margin is calculated by dividing gross profitby revenues (or sales). Net profit (or loss) is calculated bysubtracting all other expenses, including operating expenses andincome taxes from gross profit. Operating expenses are all businesscosts (such as expenditures for sales and marketing, general andadministrative expenditures, and depreciation) other than thoseincluded in the cost of goods sold. Net margins arecalculated by dividing net profit (or loss) by revenues (orsales).

A balance sheet provides a snapshot of a companyâs financialassets and liabilities on a given date, usually the close of anaccounting period. It lists what material andintangible assets the business owns and what money the businessowes either to its creditors (liabilities) or to its owners(shareholdersâ equity, also known as net worth). At any given timea businessâs assets equals the sum of its liabilities plus its networth. Current assets include cash, securities, accountsreceivable, or other investments that are likely to be convertedinto cash within one year. Liabilities are outstanding obligationsof the firm. Current liabilities are debts that are due within oneyear. Long-term debt consists of liabilities that are not due untilafter a year or more. If too much debt has been used to finance thefirmâs operations, problems may arise in meeting future interestpayments and repaying outstanding loans. By examining a series ofbalance sheets, one can identify and analyze trends in thefinancial strength of a business.

erinweasel323

Case 2.3 Walgreens Co. and Subsidiaries

The following excerpts are from the 2013 Walgreen Co. Form 10-K:

CONSOLIDATED BALANCE SHEETS

Walgreens Co. and Subsidiaries at August 31,2013 and 2012

(in millions, except shares and per share amounts)

Cash and cash equivalents

Property & equipment, at cost,less accumulated deprec & amortization

$12,138

$12,038

Equity investment in Alliance Boots

$2,410

$2,161

Alliance Boots call option

Other noncurrent assets

Liabilities and Shareholders' Equity

Current Liabilities

Short-term borrowings

$570

$1,319

Trade accounts payable

$4,635

$4,384

Accrued expenses and other liabilities

Total Current Liabilites

$8,883

$8,722

Noncurrent liabilites

Long-term debt

$4,477

$4,073

Deferred income taxes

$600

$545

Other noncurrent liabilities

$2,067

$1,866

Total noncurrent liabilites

$7,144

$6,504

Commitments and contingencies(see note)

Shareholders' Equity

Preferred stock, $.0625 per value; authorized 32 million shares;

issued 1,028,180,150 shares in 2013 and 2012

Employee stock loan recievable

Accumulated other comprehensive (loss) income

($98)

$68

Treasury Stock at cost, 81,584,572 shares in 2013 and

84,124,816 shares in 2012

($3,114)

($2,985)

Total Shareholders' Equity

$19,454

$18,236

Total Liabilites and Shareholder's Equity

$35,481

$33,462

The accompanying Notes to Consolidated Financial Statements are integral parts of these statments.

Notes to Consolidated financial Statements

1.Summary of Major Accounting Policies

Description of Business

The company is principally in the retail drugstore business and its operations are within one reportable segment. At August 31,2013 there was 8,582 drugstore and other locations in 50 states, the District of Columbia, Guam, and Puerto Rico. Prescription sales were 62.9% of total sales for fiscal 2013 compared to 63.2% in 2012 and 64.7% in 2011.

Allowance for Doubtful Accounts

The provision for bad debt is based on both historical write-off percentages and specifically identified receivables. Activity in the allowance for doubtful accounts was as follows (In millions):

	2013	2012	2011
Balance at beginning of year	$99	$101	$104
Bad debt provision	$124	$107	$88
Write-offs	($69)	($109)	($91)
Balance at end of year	$154	$99	$101

Inventories

Inventories are valued on a lower of last-in, first-out (LIFO) cost or market basis. At August 31, 2013 and 2012, inventories would have been greater by $2.1 billion and $1.9 billion, respectively, if they had been valued on a lower of first-in, first-out (FIFO) cost or market basis. As a result of declining inventory levels, the fiscal 2013 and 2012 LIFO provisions were reduced by $194 million and $268 million of LIFO liquidation, respectively. Inventory includes product costs, inbound freight, warehousing costs, and vendor allowances not classified as a reduction of advertising expense.

3.Leases

The company owns 20.2% of its operating locations; the remaining locations are leased premises. Initial terms are typically 20 to 25 years, followed by additional terms containing renewal options at five-year intervals, and may include rent escalation clauses. The commencement date of all lease terms is the earlier of the date the company becomes legally obligated to make rent payments or the date the Company has to right to control the property. The Company recognizes rent expense on a straight-line basis over the term of the lease. In addition to minimum fixed rentals, some leases provide for contingent rentals based upon a portion of sales.

Minimum rental commitments at August 31, 2013, under all leases having an initial or remaining non-cancelable term of more than one year are shown below (in Millions):

	Capital Lease	Operatin Lease
2014	$19	$2,536
2015	$19	$2,514
2016	$18	$2,464
2017	$17	$2,389
2018	$15	$2,292
Later	$270	$23,507
Total Minimum lease Payments	$358	$35,702

The capital lease amoutn includes $155 million of imputed interest and executory costs. Total minimum lease payments have not been reduced by minimum sublease rentals of approximately $140 million on leases due in the future under non-cancelable subleases.

The Company remains secondarily liable on 26 assigned leases. The maiximum potential undiscounted future payments are $18 million at August 31, 2013. Lease option dates vary, with some extending to 2041.

WALGREEN CO. INFORMATION FROM CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended August 31,2013 and 2012 (in millions)
	2013	2012
Sales	$72,217	$71,633
Net Income	$2,450	$2,127

Required:

a. Using the consolidated balance sheets for Walgreen Co. for August 31,2013 and 2012, prepare a common-size balance sheet.

b. Which current asset is the most significant? Which noncurrent asset is the most significant? Are the relative proportions of current and noncurrent assets what you would expect for a drug store?

c. Analyze accounts recievable and allowance for doubtful accounts.

d. What inventory is used to value inventories? Has Walgreen experienced inflation or deflation? Explain your answer. Explain the reference in the inventory note to the LIFO liquidation and what this means with regard to net income reported.

e. Assess the level of debt and risk that Walgreen has by looking only at the balnce sheet.

f. Estimate the dollar amount of dividends Walgreens paid in 2013.

g. Does Walgreen use off-balance sheet fiancing? Explain your answer.

h. Evaluate the creidtworthiness of Walgreen based on the Balance sheet and the excerpts from the notes.

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ACCT 001 Lecture Notes - Lecture 5: Southwest Airlines, Deferred Income, Current Liability

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