In my next case, I perform a shareholder equity analysis with two different companies with different aspects of equity. After finishing all the magazines and financial statements, I started my analysis of each company in order to determine which is the best one to invest in.
TOTZ Inc
Income Statement Presentations
Parent companies can also include the subsidiary's depreciation, because historical income statements must reflect the costs of doing business. T “Question 1: Should the subsidiary's historical income statements reflect all costs incurred by the parent company on its behalf? A gain on the sale of a head office must be reported in the income statement as a separate component of income from continuing operations.
The nature and financial effects of each event or transaction must be disclosed on the face of the income statement or alternatively in notes to the financial statements. Such items should not be reported on the face of the income statement after deduction of income taxes or in any other way that might suggest that they are extraordinary items. Similarly, the EPS effects of these items should not be presented on the face of the income statement."
The profits from the class action settlement would be reported within operating income on the income statement.
Rocky Mountain Chocolate Factory, Inc
Preparation of Financial Statements
For each of the journal entries recorded in the spreadsheet, I interpret where each of the transactions is recorded in the cash flow statement.
Kayla Stevens’ Craft Shop An Analysis of Internal Controls
There must be some implementation of tasks that change hands on a regular basis to ensure. consistent work with no signs of fraud. Technology Update: Kayla needs to update her accounting software due to updates that would help stop any kind of fraud. Frequent reporting: There should be weekly or bi-weekly reports that can summarize cash flow or other operations inside the store that should be used to keep the associate clerk via ID number.
Inventory Check: This store must personally use frequent reports and physically check random parts of the inventory to ensure there are no false sales. The store should increase the accountability of the clerks by having accountants for certain parts of the store/inventory. Checking registers: Every day Kayla has to make sure the registers start at a certain monetary value.
Every day at the end of the business day, that register must be counted back to its normal balance, and the clerk must be held responsible for every transaction that passes through his or her hands.
An Analysis of a Manufacturing Company’s Inventory Accounts
- The company’s inventory consists of Raw Materials, Work-in-Process, and
- Inventory is recorded net of allowance for obsolete or unmarketable inventory
- The beginning balance for 2012 is the same as the ending balance of 2011
- We would attribute the portion of the reserve for obsolete inventory to Finished Goods. The portion of reserve is probably unable to be sold because
Raw materials consist of materials that must be used together with other materials to create Work-in-Process, and when the Work-in-Process is completed, the goods become Finished Goods. Work-in-Process consists of the direct materials and indirect materials along with direct labor and indirect labor. This account is an offset account and the amount is not reported directly on the balance sheet.
Instead, it is shown as deducted from the gross inventory and the net amount is shown on the balance sheet. The spare part may not be sold due to a malfunction in the manufacturing process. Since the company's inventory decreased in the second year, they have become better at selling inventory.
I think these are important for any company, but calculated ratios provide some key statistics for analysis.
Accounting for Property, Plant, and Equipment
Expenses are defined as things that use up assets and liabilities to perform a service or make a product. The costs must be expensed when it is not expected that the costs will generate significant profits in the future. Since this is the biggest operating expense by a large amount, I feel they should describe what exactly they are better at.
WorldCom instead amortized the $3.1 billion over 10 years rather than recording it as an expense for that quarter.
An Analysis of Relocation Expenses
A liability for a cost associated with a severance or disposal activity must be recognized in the period in which the liability is incurred, except as specified in the paragraphs and for a liability for one-off employee benefits that are incurred over time). A company's communication of a promise to provide lump sum benefits to employees is a promise that creates an obligation on the date of communication to provide severance benefits if employees are terminated. The timing of recognition of non-recurring employee benefits depends on whether employees are required to serve until terminated in order to receive the severance payments and, if so, whether employees will be retained for service beyond a minimum retention period.
The time frame for measuring the liability for one-time employee severance benefits depends on whether employees must serve until terminated to receive severance benefits and, if so, whether employees will be retained to work beyond the minimum retention period. If employees are required to serve until terminated in order to receive severance benefits and are retained to serve after a minimum retention period, the liability for severance benefits should be initially measured at the communication date on a fair value basis. liabilities from the date of termination. An employer providing contractual severance benefits must recognize a liability and loss when it is probable that the employees will be entitled to the benefits and the amount may be eligible.
Since employees are required to work until they are laid off to receive the compensation package, a liability for severance benefits must initially be valued at the.
An Analysis of Shareholder’s Equity
Treasury stock must be subtracted from issued stock to give you shares outstanding. A company can buy back their own shares to reduce the number of outstanding shares. They do not disclose treasury stock as an asset because it is a contra equity account.
Xilinx Inc
An Analysis of Restricted Stock
Stock options are offered by a company to its employees to make them feel that they are getting their "piece of the pie" and also helps to attract and retain a motivated staff. RSUs are a grant of units equal to one share of stock, and Xilinx does not issue the stock at the time of grant. Unlike stock options, RSUs will always have value regardless of whether the stock price goes up or down.
Granted options/RSUs entitle employees to purchase a specified number of shares of the company's stock at a predetermined price. It is also required to record this expense for the unvested portion of the employee stock-based compensation. The exercise price of the employee stock options is equal to the market price of Xilinx common stock.
Xilinx uses the straight-line method of recognizing stock-based compensation expense over the requisite vesting service period.
Bier Haus
An Analysis of Revenue Recognition
A contract to purchase a mug of beer occurs when the college student requests a beer from the bartender in exchange for money. A contract to purchase a mug and beer occurs when the college student orders a beer and mug from the bartender. The transaction price for this exchange is $7 total for both the mug and the beer.
Revenue of $7 is recognized today when the customer receives the beer and beer mug. Bier Haus is obliged to refill the thermos mug with beer and provide pretzels at a later time when the customer redeems the coupon. The transaction price for this exchange is $7 total for both the beer and pretzel coupon.
Beer refill revenue is recognized at the time the beer is filled and given to the customer.
Zagg Inc
An Analysis of Book vs. Tax Income
- Describe what is meant by the term book income? Which number in ZAGG’s statement of operation captures this notion for fiscal 2012? Describe how a company’s book income differs
- In your own words, define the following terms
- Explain in general terms why a company reports deferred income taxes as part of their total income tax expense. Why don’t companies simply report their current tax bill as their income
- Explain what deferred income tax assets and deferred income tax liabilities represent. Give an example of a situation that would give rise to each of these items on the balance sheet
- Explain what a deferred income tax valuation allowance is and when it should be recorded
- Consider the information disclosed in Note 8 – Income Taxes to answer the following questions
Explain in general terms why a company reports deferred income taxes as part of total income tax expense. Why don't companies just report their actual tax bill as their income tax expense. A company reports deferred income taxes to tell the investor whether it will benefit the investor or hurt the investors.
A deferred tax assessment allowance is created for a deferred tax asset and should be created if there is more than a 50 percent chance that the company will not realize part of the asset. Use the information in the first table in Note 8 to show the posting that ZAGG recorded for the income tax provision in the 2012 tax year. Using the information in the third table in Note 8, divide the amount of "net deferred income tax" recorded in the income tax journal entry in part f.
Deferred tax assets of $6,912 can be found in the current assets section of the balance sheet.
Build-A-Bear Workshop An Analysis of Capital Leases
The criteria it meets are that the lease transfers ownership of the property to the lessee, the lease contains a purchase option, the lease term is greater than or equal to 75 percent or more of the expected economic life of the leased, and the present value of the minimum lease payments (excluding executor costs) is equal to or exceeds 90 percent of the fair value of the leased item. A sales-type lease is the same as a direct finance lease, except for the manufacturer's or dealer's gross profit (or loss). In a sales-type leasing contract, the lessor records the sales price for the asset, the price of goods sold and associated inventory reduction and the lease receivable.
Upon expiration of the lease, ownership of the location does not transfer to Build-A-Bear, nor is there an option to purchase. The present value of the expected lease payments will be treated as a "right to use the leased asset." A corresponding capital lease liability will be recorded, representing the liability incurred when the right-of-use asset was acquired. Note that the current portion of the liability under capital leasing is the most significant portion of the liability that will be repaid in fiscal year 2010.).
When structured as an operating lease, there will be a decrease in the amount of reported debt (both short-term and long-term), a decrease in the amount of total assets (specifically long-lived assets), and a higher income early in the life of the lease and thus higher retained earnings.
