Financial & Managerial Accounting
14th Edition
ISBN: 9781337119207
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Textbook Question
Chapter 10, Problem 1ADM
Continuing Company Analysis-Amazon: Short-term liquidity analysis
Amazon.com, Inc. is one of the largest Internet retailers in the world. Best Buy, Inc. is a leading retailer of consumer electronics and media products in the United States. Amazon and Best Buy compete in similar markets; however, Best Buy sells through both traditional retail stores and the Internet, while Amazon sells only through the Internet. Current asset and current liability information from recent financial statements are as follows (in millions):
| Amazon | Best Buy | |
| Current assets: | ||
| Cash | $14,557 | $ 2,432 |
| Short-term investments | 2,859 | 1,456 |
| Accounts receivable | 5,612 | 1,280 |
| Inventories | 8,299 | 5,174 |
| Other current assets | — | 1,387 |
| Total current assets | $31,327 | $11,729 |
| Current liabilities: | ||
| Accounts payable | $16,459 | $ 5,122 |
| Other current liabilities | 11,630 | 2,314 |
| Total current liabilities | $28,089 | $ 7,436 |
A. Compute
B. Compute the
C. Compute the quick ratio for each company. (Round to one decimal place)
D. Can the working capital be usefully compared between the two companies? Explain.
E. Which company has the greater debt-paying ability according to the current ratio?
F. Which company has the greater short-term debt-paying ability according to the quick ratio?
G. Why are the results different between (E) and (F)? (Hint: Perform a vertical analysis of the current assets)
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Review problem—understanding liquidity measures Assume that the currentratio for Arch Company is 2.0, its acid-test ratio is 1.5, and its working capital is$300,000. Answer each of the following questions independently, always referring tothe original information.a. How much does the firm have in current liabilities?b. If the only current assets shown on the balance sheet for Arch Company areCash, Accounts Receivable, and Merchandise Inventory, how much does thefirm have in Merchandise Inventory?c. If the firm collects an account receivable of $100,000, what will its new currentratio and working capital be?d. If the firm pays an account payable of $100,000, what will its new current ratioand working capital be?e. If the firm sells inventory that was purchased for $50,000 at a cash price of$60,000, what will its new acid-test ratio be?
Trimax Solutions develops software to support e-commerce. Trimax incurs substantial computer software development costs as well as substantial research and development (R&D) costs related to other aspects of its product line. Under GAAP, if certain conditions are met, Trimax capitalizes software development costs but expenses the other R&D costs. The following information is taken from Trimax’s annual reports ($ in thousands):
R&Dcosts....................... Netincome....................... Totalassets(atyear-end) ........... Equity(atyear-end)................ Capitalized software costs
Unamortized balance (at year-end) . . Amortization expense . . . . . . . . . . . .
Required:
1999
$ 400 312 3,368 2,212
20 4
2000
$ 491 367 3,455 2,460
31 7
2001
$ 216 388 3,901 2,612
2002
$ 212 206 4,012 2,809
2003
$ 355 55 4,045 2,889
31 13
2004
$ 419 81 4,077 2,915
42 15
2005
$ 401 167 4,335 3,146
43 15
2006
$ 455 179 4,650 3,312
36 14
27 22 9 12
CHECK
(a) Year2006,$7
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(e)…
Potential Acquisition
Your company is considering acquiring a private company (New Co., Inc.). The CFO has asked you to review the financial statements, look for key trends, and develop financial/operational questions to ask the management of New Co. when you meet next week. Calculate average collection period, total asset turnover, inventory turnover, and days in inventory.
New Co., Inc. Income Statement
12/31/22
12/31/21
12/31/20
12/31/19
Revenue
Total Revenue
37,651,000
40,403,000
39,528,000
40,339,000
Cost of Revenue
29,175,000
30,963,000
30,334,000
31,292,000
Gross Profit
8,476,000
9,444,000
9,194,000
9,047,000
Operating Expenses
Selling General and Administrative
7,911,000
7,493,000
7,612,000
7,550,000
Operating Income or Loss
565,000
1,947,000
1,582,000
1,497,000
Income from Continuing Operations
Interest Expense
75,000
72,000
80,000
90,000
Income Before Tax
490,000
1,875,000
1,502,000
1,407,000…
Chapter 10 Solutions
Financial & Managerial Accounting
Ch. 10 - Does a discounted note payable provide credit...Ch. 10 - Employees are subject to taxes withheld from their...Ch. 10 - Prob. 3DQCh. 10 - Prob. 4DQCh. 10 - Prob. 5DQCh. 10 - To match revenues and expenses properly, should...Ch. 10 - Prob. 7DQCh. 10 - Prob. 8DQCh. 10 - When should the liability associated with a...Ch. 10 - Prob. 10DQ
Ch. 10 - Proceeds from notes payable On January 26, Nyree...Ch. 10 - Prob. 10.2BECh. 10 - Prob. 10.3BECh. 10 - Journalize payroll tax The payroll register of...Ch. 10 - Prob. 10.5BECh. 10 - Journalizing installment notes On the first day of...Ch. 10 - Prob. 10.7BECh. 10 - Prob. 10.1EXCh. 10 - Entries for notes payable Bennett Enterprises...Ch. 10 - Evaluating alternative notes A borrower has two...Ch. 10 - Entries for notes payable A business issued a...Ch. 10 - Entries for discounted note payable A business...Ch. 10 - Prob. 10.6EXCh. 10 - Prob. 10.7EXCh. 10 - Calculate payroll An employee earns 44 per hour...Ch. 10 - Prob. 10.9EXCh. 10 - Prob. 10.10EXCh. 10 - Payroll tax entries According to a summary of the...Ch. 10 - Payroll entries The payroll register for D. Salah...Ch. 10 - Prob. 10.13EXCh. 10 - Prob. 10.14EXCh. 10 - Prob. 10.15EXCh. 10 - Accrued vacation pay A business provides its...Ch. 10 - Pension plan entries Yuri Co. operates a chain of...Ch. 10 - Prob. 10.18EXCh. 10 - Entries for installment note transactions On the...Ch. 10 - Entries for installment note transactions On...Ch. 10 - Prob. 10.21EXCh. 10 - Prob. 10.22EXCh. 10 - Prob. 10.23EXCh. 10 - Prob. 10.24EXCh. 10 - Liability transactions The following items were...Ch. 10 - Entries for payroll and payroll taxes The...Ch. 10 - Wage and tax statement data on employer FICA tax...Ch. 10 - Prob. 10.4APRCh. 10 - Payroll accounts and year-end entries The...Ch. 10 - Prob. 10.1BPRCh. 10 - Entries for payroll and payroll taxes The...Ch. 10 - Prob. 10.3BPRCh. 10 - Prob. 10.4BPRCh. 10 - Payroll accounts and year-end entries The...Ch. 10 - Prob. 3CPPCh. 10 - Continuing Company Analysis-Amazon: Short-term...Ch. 10 - Prob. 2ADMCh. 10 - Prob. 3ADMCh. 10 - Prob. 4ADMCh. 10 - Prob. 10.1TIFCh. 10 - Prob. 10.3TIF
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