Concept explainers
Costco is the largest chain of membership warehouse clubs in the world based on sales volume, and it is the fifth largest general retailer in the United States. Costco focuses on selling products at low prices, often at a very high volume. These goods are usually bulk-packaged and marketed primarily to large families and businesses. Costco became the first company to grow from zero to $3 billion in sales in less than six years. In a recent fiscal year, Costco’s sales totaled $76.3 billion, a 29.3 percent increase from 2006, and its net income reached $1.30 billion, an 18.1 percent increase from 2006. This information, and much more, can be derived from the financial statements that merchandising firms such as Costco prepare on a regular basis to provide shareholders and other interested parties information about the company’s activities and financial performance.
- 1. What type of information would a classified income statement provide to shareholders and other interested parties?
- 2. What type of information would a classified balance sheet provide to shareholders and other interested parties? Why would this information be important for calculating the
working capital and thecurrent ratio , for example?
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College Accounting (Book Only): A Career Approach
- The Home Depot is a leading specialty retailer of hardware and home improvement products and is the second-largest retail store chain in the United States. It operates large warehouse-style stores. Despite declining sales and difficult economic conditions in 20X1 and 20X2, The Home Depot continued to invest in new stores. The following table provides summary hypothetical data for The Home Depot. REQUIRED a. Use the preceding data for The Home Depot to compute average revenues per store, capital spending per new store, and ending inventory per store in 20X2. b. Assume that The Home Depot will add 100 new stores by the end of Year +1. Use the data from 20X2 to project Year +1 sales revenues, capital spending, and ending inventory. Assume that each new store will be open for business for an average of one-half year in Year +1. For simplicity, assume that in Year +1, Home Depots sales revenues will grow, but only because it will open new stores.arrow_forwardPosavek is a wholesale supplier of building supplies building contractors, hardware stores, and home-improvement centers in the Boston metropolitan area. Over the years, Posavek has expanded its operations to serve customers across the nation and now employs over 200 people as technical representatives, buyers, warehouse workers, and sales and office staff. Most recently, Posavek has experienced fierce competition from the large online discount stores. In addition, the company is suffering from operational inefficiencies related to its archaic information system. Posavek revenue cycle procedures are described in the following paragraphs. Revenue Cycle Posaveks sales department representatives receive orders via traditional mail, e-mail, telephone, and the occasional walk-in customer. Because Posavek is a wholesaler, the vast majority of its business is conducted on a credit basis. The process begins in the sales department, where the sales clerk enters the customers order into the centralized computer sales order system. The computer and file server are housed in Posaveks small data processing department. If the customer has done business with Posavek in the past, his or her data are already on file. If the customer is a first-time buyer, however, the clerk creates a new record in the customer account file. The system then creates a record of the transaction in the open sales order file. When the order is entered, an electronic copy of it is sent to the customers e-mail address as confirmation. A clerk in the warehouse department periodically reviews the open sales order file from a terminal and prints two copies of a stock release document for each new sale, which he uses to pick the items sold from the shelves. The warehouse clerk sends one copy of the stock release to the sales department and the second copy, along with the goods, to the shipping department. The warehouse clerk then updates the inventory subsidiary file to reflect the items and quantities shipped. Upon receipt of the stock release document, the sales clerk accesses the open sales order file from a terminal, closes the sales order, and files the stock release document in the sales department. The sales order system automatically posts these transactions to the sales, inventory control, and cost-of-goods-sold accounts in the general ledger file. Upon receipt of the goods and the stock release, the shipping department clerk prepares the goods for shipment to the customer. The clerk prepares three copies of the bill of lading. Two of these go with the goods to the carrier and the third, along with the stock release document, is filed in the shipping department. The billing department clerk reviews the closed sales orders from a terminal and prepares two copies of the sales invoice. One copy is mailed to the customer, and the other is filed in the billing department. The clerk then creates a new record in the accounts receivable subsidiary file. The sales order system automatically updates the accounts receivable control account in the general ledger file. CASH RECEIPTS PROCEDURES Mail room clerks open customer cash receipts, reviews the check and remittance advices for completeness, and prepares two copies of a remittance list. One copy is sent with the checks to the cash receipts department. The second copy of the remittance advices are sent to the billing department. When the cash receipts clerk receives the checks and remittance list, he verifies the checks received against those on the remittance list and signs the checks For Deposit Only. Once the checks are endorsed, he records the receipts in the cash receipts journal from his terminal. The clerk then fills out a deposit slip and deposits the checks in the bank. Upon receipt of the remittances, the billing department clerk records the amounts in the accounts receivable subsidiary ledger from the department terminal. The system automatically updates the AR control account in the general ledger Posavek has hired your public accounting firm to review its sales order procedures for internal control compliance and to make recommendations for changes. Required a. Create a data flow diagram of the current system. b. Create a system flowchart of the existing system. c. Analyze the physical internal control weaknesses in the system. d. (Optional) Prepare a system flowchart of a redesigned computer-based system that resolves the control weaknesses that you identified. Explain your solution.arrow_forwardJW Office Supplies, Inc., is a wholesale distributor of office supplies. It sells pencils and pens, paper goods (including computer paper and forms), staplers, calendars, and other items, excluding furniture and other major items such as copy machines that you would expect to find in an office. Sales have been growing at 5 percent per year during the past several years. Mr. Kay, the president of JW Office Supplies, recently attended a national office supplies convention. In conversations during that convention, he discovered that sales for ABC Office Supplies competitors have been growing at 15 percent per year. Arriving back home, he did a quick investigation and discovered the following: JW Office Supplies customer turnover is significantly higher than the industry average. JW Office Supplies vendor turnover is significantly lower than the industry average. The new market analysis system was supposed to be ready two years ago but has been delayed for more than one year in systems development. A staff position, reporting to the president, for a person to prepare and analyze cash budgets was created two years ago but has never been filled. Mr. Kay has called on you to conduct a systems survey of this situation. You are to assume that a request for systems development has been prepared and approved. The information system at JW Office Supplies is much like that depicted in Chapters 10 through 16. Make and describe all assumptions that you believe are necessary to solve any of the following: a. What are the specific tasks of this systems survey? b. Indicate specific quantifiable benefits and costs that should be examined in assessing the economic feasibility of any solutions that might be proposed. Explain how you would go about quantifying each benefit or cost. c. Propose and explain three different scopes for the systems analysis. Use a context diagram to describe each scope alternative. Hint: What subsystems might be involved in an analysis?arrow_forward
- All-Mart is a department store with three major departments: Housewares, Hardware, and Electronics. Company management is very concerned about the performance of the electronics department, noting that it seems to be a drag on the company based on its most recent fiscal quarter. A company-wide segmented income statement follows: Housewares Hardware Electronics Total Sales $150,000 $220,000 $200,000 $570,000 Variable expenses 60,000 100,000 140,000 300,000 Contribution margin 90,000 120,000 60,000 270,000 Fixed expenses 50,000 100,000 90,000 240,000 Operating income (loss) $40,000 $20,000 $(30,000) $30,000 The company notes that if the electronics department were dropped, the other departments could expect a 10% decrease in foot traffic and sales. Also, $20,000 of the electronics department’s fixed costs are allocated and would continue even if the department was dropped.…arrow_forwardWestern Boot Co. sells men’s, women’s, and children’s boots. For each type of boot sold, it operates a separate department that has its own manager. The manager of the men’s department has a sales staff of nine employees, the manager of the women’s department has six employees, and the manager of the children’s department has three employees. All departments are housed in a single store. In recent years, the children’s department has operated at a net loss and is expected to continue to do so. Last year’s income statements follow. *Before the paragraph it stated under check figures " a. Contribution to profit: $4,000"arrow_forwardKiley Corporation had the following data for the most recent year (in millions). The new CFO believes (1) that an improved inventory management system could lower the average inventory by $4,000, (2) that improvements in the credit department could reduce receivables by $2,000, and (3) that the purchasing department could negotiate better credit terms and thereby increase accounts payable by $2,000. Furthermore, she thinks that these changes would not affect either sales or the costs of goods sold. If these changes were made, by how many days would the cash conversion cycle be lowered? (Hint: Calculate the CCC for original and then for revised and take the difference. SHOW ALL WORK)arrow_forward
- Kiley Corporation had the following data for the most recent year (in millions). The new CFO believes (1) that an improved inventory management system could lower the average inventory by $4,000, (2) that improvements in the credit department could reduce receivables by $2,000, and (3) that the purchasing department could negotiate better credit terms and thereby increase accounts payable by $2,000. Furthermore, she thinks that these changes would not affect either sales or the costs of goods sold. If these changes were made, by how many days would the cash conversion cycle be lowered? Original Revised Annual sales: unchanged $110,000 $110,000 Cost of goods sold: unchanged $80,000 $80,000 Average inventory: lowered by $4,000 $20,000 $16,000 Average receivables: lowered by $2,000 $16,000 $14,000 Average payables: increased by $2,000 $10,000 $12,000 Days in year 365 365arrow_forwardAvatar Corp. has been the wholesale distributor of auto parts for domestic cars for 20 years. The company has suffered through the recent slump in the domestic auto industry, and its performance has not rebounded to the levels of the industry as a whole. The income statement for the year ended November 30, 2019 is also as follows (in thousands): Avatar Corp. Income Statement For the year ended, November 30, 2019 Net Sales 8,400 Cost and Expenses Cost of good sold 6,300 Marketing expenses 780 Administrative expense 900 Interest Expense 140 Total Expenses 8,120 Income before tax 280 Provision for income tax 112 Net income 168 The management team is considering the following actions for fiscal year 2020, which they expect, will improve profitability and result in a 5% increase in unit sales. a. Increase sales price 10% b. Increase…arrow_forwardUnilever’s products are sold in over 190 countries, and according to the company’s annual report, roughly 2 billion customers worldwide use Unilver products on any given day. Those stats put Unilever in an elite group of companies that own the most brands across the globe. Though best known for its iconic Pepsi soda, PepsiCo has expanded past its soft drink roots, offering some of the most popular snack food brands. The company’s top snacks include Doritos, Cheetos, Tostitos, Fritos, Lay’s, Ruffles, Stacy’s, Sabra, and muller. Unilever understand that brands are intangible asset of the company but wondering how to record all internally developed brands in its financial statements - at market value or at original cost? Please advise to the Unilever managementarrow_forward
- PepsiCo sells its soft drinks in approximately 400,000 retail establishments, such as supermarkets, discount stores, and convenience stores. Sales representatives call on each retail account weekly, which means each account is called on by a sales rep 52 times per year. The average length of a sales call is 75 minutes (or 1.25 hours). An average salesperson works 2,000 hours per year (50 weeks per year * 40 hours per week), but each spends 10 hours a week on non-selling activities, such as administrative tasks and travel. How many salespeople does PepsiCo need?arrow_forwardBen's Tasty Rigatoni is looking to improve its market share in the pasta industry. The company reported sales revenue of $2,560,000 last year in an industry of $16,000,000 across all brands. The costs of the goods sold over the past year was $800,000. Also, Ben's Tasty Rigatoni spent $200,000 in administrative expenses while the industry as a whole (including Ben's) spent $1,500,000. Suppose they would like to achieve a market share of 20% in the upcoming year. Use share point analysis to determine how much Ben's should increase their administrative expenditures this year in order to reach their goal. A.$102,000 B. $60,000 C. $90,000 D. $48,000 E. $12,000arrow_forwardSizemo Elektroniks sells semiconductors that are used in games and small toys. The company has been extremely successful in recent years, recording an increase in earnings each of the past six quarters. At the end of the current quarter, Jay Shulz, the company's staff accountant, calculated the ending inventory for the semiconductors and was surprised to find that the quantity of the Hayden X537 model had not changed during the quarter. Jay confirmed his calculation with the inventory control manager, who indicated that sales of the Hayden 537X had stopped when the Hayden 637X semiconductor was released early in the quarter. Jay researched the issue further and found that the Hayden 637X semiconductor has the same applications as the Hayden 537X, but has more computing power and a lower cost than the 537X. Jay emailed this information to Tina Vereen, the chief financial officer, and recommended that the company apply the lower-of-cost-or-market method to the Hayden 537X semiconductors…arrow_forward
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