ACC 305 Lecture Notes - Lecture 12: Historical Cost, Financial Statement, Business Cycle
1.Closing entries deal primarily with the balances of realaccounts.
2.Which of the following accounts does not appear inthe Balance Sheet columns of a work sheet?
Financial Statement Analysis ProjectâA Comparative Analysis ofOracle Corporation and Microsoft Corporation
Here is the link for the financial statements for OracleCorporation for the fiscal year ending 2011. First, select 2011using the drop-down arrow labeled Year on the right-hand side ofthe page, and then select Annual Reports using the drop-down arrowlabeled Filing Type on the left-hand side of the page.
You should select the 10k dated 6/28/2011 and choose to downloadin PDF, Word, or Excel format.
Here is the link for the financial statements for MicrosoftCorporation for the fiscal year ending 2011. You need to press theword Go on the left-hand side of the page. Then you shouldselect the 10k dated 7/28/2011 and choose to download in Word orExcel format.
A sample project template is available for download in DocSharing. The sample project compares the ratio performance ofTootsie Roll and Hershey using the 2012 financial statements ofTootsie Roll and Hershey provided at their websites.
This course contains a Course Project. You will be required tosubmit one draft of the project at the end of Week 5 and the final,completed project at the end of Week 7. Using the financialstatements for Oracle Corporation and Microsoft Corporation,respectively, you will calculate and compare the financial ratioslisted further down this document for the fiscal year ending 2011and prepare your comments about the two companiesâ performancebased on your ratio calculations. The entire project will be gradedby the instructor at the end of the final submission in Week 7, andone grade will be assigned for the entire project.
For the Final Submission
Your final Excel workbook submission should contain thefollowing items. You cannot use any software but Excel to completethis project.
A completed worksheet title page tab, which is really acoversheet with your name, the course, the date, your instructorâsname, and the title for the project.
A completed worksheet profiles tab that contains a one-paragraphdescription regarding each company with information about theirhistories, what products they sell, where they are located, and soon.
All 16 ratios for each company, with the supporting calculationsand commentary on your worksheet ratio tab. Supporting calculationsmust be shown either as a formula or as text typed into a differentcell. The ratios are listed further down this document. Yourcomments for each ratio should include more than just a definitionof the ratio. You should focus on interpreting each ratio numberfor each company and support your comments with the numbers foundin the ratios.
The Summary and Conclusions worksheet tab is an overallcomparison of how each company compares in terms of the majorcategory of ratios described in Chapter 13 of your textbook. A niceway to conclude is to state which company you think is the betterinvestment and why.
The Bibliography worksheet tab must contain at least yourtextbook as a reference. Any other information you use to profilethe companies should also be cited as a reference.
Required Ratios for Final ProjectSubmission
Earnings per Share of Common Stock
Gross Profit Margin
Rate of Return on Sales (Net Profit Margin)
Daysâ Inventory Outstanding (DIO)
Accounts Receivable Turnover
Daysâ Sales Outstanding (DSO)
Rate of Return on Total Assets (ROA)
Times Interest Earned Ratio
Dividend Yield (For the purposes of this ratio, useYahoo Finance to look up current dividend yield and stock price;just note the date that you looked up thisinformation.)
Rate of Return on Common Stockholdersâ Equity (ROE)
Free Cash Flow
Price/Earnings Ratio (Multiple) (For the purpose of thisratio, for Oracle, use the market price per share on May 30, 2011and for Microsoft, use the market price per share on June 30,2011.)
The Excel files uploaded inthe Dropboxes should not include any unnecessary numbers orinformation (such as previous years' ratios, ratios that were notspecifically asked for in the project, etc.).
Here are some of theMicrosoft Ratios â (first 12) to ensure you are on the righttrack.
1. EPS â $2.73
2. Current ratio â 2.6
3. Gross profit rate â 77.7%
4. Profit margin ratio â 33.1%
5. Inventory turnover â 14.8
6. Day in inventory â 25 days
7. Receivable turnover â 5.0
8. Average Collection Period â 73 days
9. Asset Turnover Ratio â 0.72
10. Return on Assets Ratio â23.8%
11. Debt to Total AssetsRatio â 47.5%
12. Times Interest Earned â96.2
1. All of the following are characteristics of currentliabilities except:
a. they may involve estimated amounts. b. they are due withinone year or within the operating cycle, whichever is longer. c.they may be replaced with a new short-term liability rather thanbeing paid in cash. d. all three of the above are characteristic ofcurrent liabilities.
2. Which of the following is an example of a contingentliability?
a. A corporate long-term employment contract with the chiefexecutive officer. b. A lawsuit pending against a restaurant chainfor improper preparation of food. c. A liability for notes payablewith interest included in the face amount. d. The liability forfuture warranty repairs on computers sold during the currentperiod
. 3. A company will have to pay a $50,000 liability in 4 years.How much must be deposited now into a bank account earning 8%compounded semiannually to fully fund the future payment? HINT: PVof $1 The solution to this problem requires time value of moneycalculations. Reference to Tables 9-1 through 9-4 in the text isnecessary to complete the calculations.
a. $35,500 b. $36,535 c. $36,665 d. $34,000
4. On October 1, Lawrence Company borrowed $60,000 from FourthNational Bank on a 1-year, 7% note. If the company's fiscal yearends as of December 31, Lawrence should make an entry toincrease
a. interest payable, $1,050. b. prepaid interest, $3,150. c.notes payable, $1,050. d. interest expense, $4,200.
5. Warranty expenses are the result of the selling companyâsestimate of the number of units sold during the current year thatmay become defective and need repair or replacement during thewarranty period.
a. True b. False
6. Estimated liability for product warranties to be paid in thefuture is a long term liability.
a. True b. False
7. The future value of equal semi-annual payments of $500 at 8%compounded semiannually for 4 years is HINT: FV of Annuity of $1The solution to this problem requires time value of moneycalculations. Reference to Tables 9-1 through 9-4 in the text isnecessary to complete the calculations.
a. $ 868 b. $9,320 c. $2,000 d. $4,607
8. What is the correct classification of the account: Discounton Notes Payable?
a. a revenue b. a contra liability c. an asset d. an expense
9. If the annual interest is 12%, but the compounding is donequarterly, then the interest rate is 3% per period.
a. True b. False
10. A convertible bond is one where a. the issuer can convertfrom
a fixed interest rate to a floating one. b. the issuer canconvert it from long-term to short-term. c. the issuer can retirethe bond before its specified due date. d. the holder can convertthe bond into common stock at a future time.
11. Which of the following statements regarding serial bonds istrue?
a.They are likely to be issued by food companies.
b. They have shorter lives than term bonds.
c.They are strongly backed by the issuer's collateral.
d. The bonds do not all mature on the same date.
12. Bonds are a popular source of financing because
a.bond interest expense is deductible for tax purposes, whiledividends paid on stock are not.
b. financial analysts tend to downgrade a company that hasraised large amounts of cash by frequent issues of stock.
c. a company having cash flow problems can postpone payment ofinterest to bondholders.
d. the bondholders can always convert their bonds into stock ifthey choose.
13. When determining the amount of interest to be paid on abond, which of the following information is not necessary?
a.The face amount of the bonds
b. The selling price of the bonds
c.The face rate of interest on the bonds
d. The length of the interest period, annually or semiannually14. Which of the following statements is correct?
a.Bonds are issued at a price that reflects the stated rate ofinterest on the day the bond is purchased.
b. If the face rate of interest on a bond is not equal to themarket rate of interest, then the company desiring to issue thebonds must reprint its bond certificates.
c.The actual issue price of a bond represents the present valueof all future cash flows related to the bond.
d. The market rate of interest has no bearing on the sellingprice of the bonds.
15. Endeavor Company issued 20-year bonds with a coupon rate of6% when the market rate of interest was 9%. This means that thebonds were issued
a.at a premium. b. at a discount. c.at the face value. d. withan additional 3 years of interest.
16. Which of the following statements regarding leases isfalse?
a. Lease agreements are a popular form of financing the purchaseof assets because leases do not require a large initial outlay ofcash.
b. Accounting recognizes two types of leases--operating andcapital leases.
c. If a lessor classifies a lease as a capital lease, then thelessee records a lease liability on its balance sheet.
d. If a lease is classified as an operating lease, the lesseerecords a lease liability on its balance sheet.
17. Which of the following accounts would not appear on thebalance sheet of a lessee company recording a capital lease?
a. Accumulated depreciation on the leased asset
b. Lease obligation in the current liability section
c. Lease obligation in the long-term liability section
d. Rent expense on the income statement