FINANCIAL STATEMENT ANALYSIS Before you start the assignment, test your understanding of concepts covered in the assignment. It is not a graded quiz, but a tool for reviewing some key points. The tool
FINANCIAL STATEMENT ANALYSIS
Before you start the assignment, test your understanding of concepts covered in the assignment. It is not a graded quiz, but a tool for reviewing some key points. The tool can be used multiple times.
The financial statements tell a story about the financial health of a business at a given point in time. The purpose of this SLP is to apply ratio analysis to assess financial health of a publicly held corporation. Use the financial statements identified in the module four case to compute three ratios, one for each of the three following categories
Liquidity (solvency),
debt service, and
profitability.
Comment on the ratios by answering the following questions. Go to IBIS, locate a U.S. specialty industry report, which you feel is appropriate for the company you are analyzing. Use the statistics tab to view the ratios.
Name the company and show the computation of the three ratios.
Comment on the purpose and information conveyed by each ratio.
What did you learn about the company by reviewing the three ratios?
What is your conclusion about liquidity, debt, and profitability for this company?
How successful is the company relative to the industry average and leaders in its industry? Indicate the industry and specialty industry report used for comparison. Write two paragraphs or more. Include ratios found in the IBIS database to support your conclusion.
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1 Do some research regarding the infamous Enron accounting scandal and discuss how the company fraudulently reported their financials, with specific emphasis on the issues surrounding consolidation and variable interest entities. Note: FIN 46R
2.What is the difference between a companies market value and book value? How is the market value and the book value related to earnings per share? What is the market value and the book value for the public companys : McDonalds, Ford Motor Co.,Amazon.com, Walmart Why is there a difference in this number?
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2. Describe the effects that the method a parent uses to carry an investment (on its books) in a subsidiary has on the investment balance that must be eliminated in the consolidating process.
Consolidation Subsequent to Acquisition
1. Describe the characteristics of the cost method of accounting for an investment.
2. Describe the necessary treatment of the consolidating worksheet when a parent uses the cost method to account for an investment in a subsidiary
Consolidation Less than 100% Ownership
1. Allocate the purchase price for a less than 100% acquisition.
2.Calculate the components of the balance sheet and income statement that would be represented on the consolidated statements with a less than 100% acquisition.
Introduction to Earnings per Share
1.Complete a calculation of basic EPS.
2.Complete a calculation of diluted EPS.
Basic Earnings per Share
1.Complete a calculation of weighted average shares outstanding with stock issuance, repurchase, dividends, and splits.
Diluted Earnings per Share
1. Calculate the potentially dilutive effect of convertible preferred stock on basic EPS.
2.Calculate the potentially dilutive effect of stock options and warrants using the “treasury stock method” on basic EPS
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Assignment Overview Choose a U.S. public company that you are familiar with or one in which you may have an interest. You will now have the opportunity to apply some of the concepts reviewed in the pr
Assignment Overview
Choose a U.S. public company that you are familiar with or one in which you may have an interest. You will now have the opportunity to apply some of the concepts reviewed in the prior modules to the financial statements of a company of your choice. The background material in Modules 2 and 3 cover the concepts relating to the balance sheet and income statement.
Case Assignment
Required
Briefly explain your interest in the company and its business.
Go to the company’s website and locate the most recent annual financial statement (10-K or Annual Report). Include a screenshot of the website and a link to the financial statement in your write-up.
Download and save the financial statement. Submit the file as separate file as part of the assignment.
Does the corporation have an operating income or loss?
What is the amount of total assets on the balance sheet?
What type of the information is found in Statement of shareholders equity?
What type of the information is found in Statement of cash flows?
How is the statement of cash flow different than the income statement?
The report includes a lot of information in addition to the financial statements. Provide examples of two other kinds of content and makes a brief comment about each example.
Assignment Expectations
Respond to all questions showing your computations and/or using your own words. Do not use an essay format.
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Kentuckyville Slugger (KS) is a manufacturer of baseball and softball accessories. The company was established by Sammy Sousa in 1913, and produced only wooden baseball bats. KS has evolved over the past hundred years to offer a wide variety of products, including aluminum bats, batting gloves, cleats, and fielding gloves. KS’s products are sold in Canada, the United States, and Mexico. Since inception, the company has continued to be a family-run, closely held business with its manufacturing plant located in Red Deer, Alberta.
Recently, the company has been finding it difficult to compete in the global marketplace due to the fluctuating Canadian dollar, the lower wage costs in Asia, and a general decrease in consumer discretionary spending following the global credit crisis. The recent competitive pressures have made it difficult for KS to reinvest in its capital assets in order to become more efficient.
The current CEO, Michael Sousa, does not want to relocate as the company is a long-standing member of the Red Deer community, providing many citizens with well-paying jobs. However, the competitive landscape is making it difficult to continue the status quo.
Michael has recently come across a new government grant program that is part of an initiative to improve the productivity of Canadian companies and promote employment. The program provides eligible manufacturing companies with the opportunity to receive a forgivable loan to upgrade their capital assets in the interest of efficiency. The following criteria are used to assess eligibility:
• The grant must be used to invest in capital assets that will improve productivity, as measured by output per employee hour.
• The grant must promote employment in the manufacturing sector in Canada.
• The company must display a financial need for the application.
If obtained, the grant would allow KS to continue to operate in Red Deer with the same workforce and increase its output by at least 20%. Audited financial statements must be included with the grant application.
Brandon Sousa, CPA, is the controller of KS. Recently, Brandon has begun preparing the December 31, 2020 year-end financial statements to provide to the external auditors. Brandon recently met with Michael in order to discuss certain transactions that have yet to be recorded in the books of account. Michael would like Brandon to prepare a report that discusses the appropriate accounting treatment of these transactions. The notes from the meeting can be found in Exhibit I.
Exhibit I
Notes from Meeting with Michael
• KS entered into a sales agreement with the Canadian Hardball Association (CHA) to provide 5,000 hardball bats (at a price of $50 per bat) for an upcoming international baseball tournament that will be held in Canada. The bats were shipped to the CHA during the month of November 2020. Per the agreement, the CHA has until February 2021 to inspect the bats in order to determine if they meet international safety and performance standards.
• KS has manufactured bats for similar tournaments in the past and has never had an issue meeting the safety and performance standards. Michael suggests not recording any revenue in the current year because the CHA has the right to accept or reject the quality of the bat.
• KS delivered 2,500 soft-spike cleats to The Shoe Store for $100,000 in December. The cleats were sold during the holiday season. The cleats can be returned to KS within one year of the purchase date in the case of a manufacturer defect. Past history suggests that 5% of the cleats are returned within the one-year return period. Michael suggests that the revenue should be recorded once the right of return period lapses.
• During the year, KS entered into a sales agreement with SportStore (SS) whereby KS designed and manufactured an aluminum bat that is to be sold exclusively through SS’s retail stores across Canada. The exclusive agreement is for a two-year period, at which point the bat can be sold through other retailers. During the agreement period, SS must purchase a minimum of 100,000 bats from KS at a price of $55 per bat. During the year, SS purchased 45,000 bats.
• KS incurred $155,000 in design and development costs during the year in developing the bat. KS incurs $25 in costs to manufacture the bat. Michael suggests that the $155,000 design costs be expensed in the current year.
• KS sold on credit 2,500 KSX baseball gloves for $50,000 to Q-Mart in November 2020. Q-Mart is a large public company, with retail stores across Canada and the United States. Around year end, analysts have begun reporting that Q-Mart is having serious financial difficulties and may file for bankruptcy if its lenders do not restructure its debt. Q-Mart’s share price has plummeted in recent weeks. Michael suggests writing off the $50,000 account receivable.
• During the year, KS acquired a new storage warehouse in Red Deer. The warehouse was purchased for $250,000. KS then incurred $10,000 in costs to install an HVAC system and $7,500 to replace the roof shingles. Michael suggests expensing the additional costs ($17,500) as repairs and maintenance.
Required
Assume the role of Brandon and prepare the report. The financial statements are prepared in accordance with ASPE
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Your forensic accounting firm, HONEST Partners, has been engaged by the chief executive officer (CEO) of GYMZ Limited (GYMZ). GYMZ operates a series of precious metal mines throughout Australia. GYMZ is considering entering into a joint venture with another mining company, GOLDY Limited (GOLDY). As part of this joint venture proposal, GOLDY has provided GYMZ with its income statement for the last three financial years. GYMZ is concerned that GOLDY has manipulated aspects of its income statement to make it a more attractive joint venture partner. Based on the information in the table below, describe what forensic accounting tools (including interviews and financial analysis methods) you could use to reach a view about this allegation. For each of the tools you refer to, provide a critical analysis of their respective advantages and disadvantages [400 word limit] (15 Marks)
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Start by reading and following these instructions: 1. Quickly skim the questions or assignment below and the assignment rubric to help you focus. 2. Read the required chapter(s) of the textbook and an
Start by reading and following these instructions:
1. Quickly skim the questions or assignment below and the assignment rubric to help you focus.
2. Read the required chapter(s) of the textbook and any additional recommended resources. Some answers may require you to do additional research on the Internet or in other reference sources. Choose your sources carefully.
3. Consider the discussions and any insights gained from it.
4. Create your Assignment submission and be sure to cite your sources, use APA style as required, check your spelling.
Assignment:
Essay: Debt securities and interest rates
Module 6 introduces a number of different types of debt security instruments. Identify at least three different categories of debt instruments, and compare and contrast them in terms of risk as well as the potential for return.
The overall interest rate of debt security consists of a number of different components. Identify each of the components, describe each, and explain why they form a part of the overall interest rate profile of the security.
Summarize your findings in a two to three-page paper.
Problem: Capital Structure and the WACC
Percent Debt (%). After Tax Debt Cost (%). Cost of equity (%)
0. —– 14
15 5 18
45 9 22
67 12 25
78 16 30
Determine the WACC for each scenario
Determine the optimal mix of debt and equity.
Present your findings in a spreadsheet, and provide the rationale for your answers.
Assignment Expectations:
Length: Spreadsheet
500-750 words in a document; answers must thoroughly address the questions in a clear, concise manner
Structure: Include a title page and reference page in APA style. Separate each section in your paper with a clear heading that allows your professor to know which bullet you are addressing in that section of your paper. Support your ideas with at least three (3) citations in your essay. Make sure to reference the citations using the APA writing style for the essay. The cover page and reference page do not count towards the minimum word amount.
References: Include the appropriate APA style in-text citations and references for all resources utilized to answer the questions
Format: save your assignment as a Microsoft Word (.doc or .docx), Open Office (.odt) or rich text format (.rtf) file type; Use Excel or Calc for the spreadsheet.
Filename: name your saved files according to your last name, first initial and the week (for example, “jonesb.week1”)
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A footwear manufacturer company wanted to know if they made the right choice in terms of product mix and media placement. Their retailers are a mix of department stores as well as boutique shops. They place advertisements on multiple platforms; TV, print, digital, PR and email. Your company were hired for the project and your boss have decided on the following approach:
Data Analytic team: Data analytics combining store level sales data with marketing spend data
Store team: Visit key retailers/stores and examining store displays as well as in-store promotional materials
Communication team: Examining the client’s and its competitors media and communication materials
The findings and recommendations from all the teams will be combined in a single report and presented to the clients. They were given TWO months to complete the project.
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3. Describe the effects that the method a parent uses to carry an investment (on its books) in a subsidiary has on the investment balance that must be eliminated in the consolidating process.
Consolidation Subsequent to Acquisition
4. Describe the characteristics of the cost method of accounting for an investment.
5. Describe the necessary treatment of the consolidating worksheet when a parent uses the cost method to account for an investment in a subsidiary
Consolidation Less than 100% Ownership
6. Allocate the purchase price for a less than 100% acquisition.
7 .Calculate the components of the balance sheet and income statement that would be represented on the consolidated statements with a less than 100% acquisition.
Introduction to Earnings per Share
8 .Complete a calculation of basic EPS.
9 Complete a calculation of diluted EPS.
Basic Earnings per Share
10 .Complete a calculation of weighted average shares outstanding with stock issuance, repurchase, dividends, and splits.
Diluted Earnings per Share
11. Calculate the potentially dilutive effect of convertible preferred stock on basic EPS.
12.Calculate the potentially dilutive effect of stock options and warrants using the “treasury stock method” on
13. Solve BOTH EPS (Earnings Per Share) questions below
EPS Calculations
Solve BOTH EPS (Earnings Per Share) questions below
QUESTION #1)
Stanley Department Stores reported net income of $720,000 for the year ended December 31, 2021.
Additional Information:
Common shares outstanding at Jan. 1, 2021
80,000
Incentive stock options (vested in 2020) outstanding throughout 2021
24,000
(Each option is exercisable for one common share at an exercise price of $37.50)
During the year, the market price of Stanley’s common stock averaged $45 per share.
On Aug. 30 Stanley sold 15,000 common shares.
Stanley’s only debt consisted of $50,000 of 10% short term bank notes.
The company’s income tax rate is 40%.
Required:
Compute Stanley’s basic and diluted earnings per share for the year ended December 31, 2021
QUESTION #2)
Information from the financial statements of Ames Fabricators, Inc., included the following:
December 31
2021
2020
Common shares
100,000
100,000
Convertible preferred shares (convertible into 32,000 shares of common)
12,000
12,000
10% convertible bonds (convertible into 30,000 shares of common)
1,000,000
1,000,000
Ames’s net income for the year ended December 31, 2021, is $500,000. The income tax rate is 40%. Ames paid dividends of $5 per share on its preferred stock during 2021.
Required:
Compute basic and diluted earnings per share for the year ended December 31, 2021.
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2. Describe the effects that the method a parent uses to carry an investment (on its books) in a subsidiary has on the investment balance that must be eliminated in the consolidating process.
Consolidation Subsequent to Acquisition
3. Describe the characteristics of the cost method of accounting for an investment.
4. Describe the necessary treatment of the consolidating worksheet when a parent uses the cost method to account for an investment in a subsidiary
Consolidation Less than 100% Ownership
5. Allocate the purchase price for a less than 100% acquisition.
6.Calculate the components of the balance sheet and income statement that would be represented on the consolidated statements with a less than 100% acquisition.
Introduction to Earnings per Share
7.Complete a calculation of basic EPS.
8 Complete a calculation of diluted EPS.
Basic Earnings per Share
9 .Complete a calculation of weighted average shares outstanding with stock issuance, repurchase, dividends, and splits.
Diluted Earnings per Share
10. Calculate the potentially dilutive effect of convertible preferred stock on basic EPS.
11.Calculate the potentially dilutive effect of stock options and warrants using the “treasury stock method” on
12. Solve BOTH EPS (Earnings Per Share) questions below
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