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4. The solution depends on the financial statement information accessed.
Comparative Analysis — BTN 11-2
1. Apple—Times interest earned
($ millions)
Current
Year
One Year
Prior
Two Years
Prior
Net income................................................$37,037 $41,733 $25,922
Google—Times interest earned
($ millions)
Current
Year
One Year
Prior
Two Years
Prior
Net income (loss)......................................$ 12,920 $ 10,737 $ 9,737
2. Apple reports interest expense of $136 million for 2013. This problem
assumes that Apple reports interest expense of $100 million for 2012
and 2011. Apple and Google both are in strong positions in their ability
Ethics Challenge — BTN 11-3
1. It is in Bly’s self-interest to maximize the amount of revenues less
warranty expenses so as to maximize his personal bonus. Since Bly
2. Although Bly might be able to affect the amount of revenues less
warranty expenses via the warranty expense accrual in the short run,
over several years the amounts should even out. The dealership
should probably adjust the warranty expense accrual to match the
Communicating in Practice — BTN 11-4
MEMORANDUM
To: Tom Pretti, General Manager
From: Dusty Johnson, ManagerAccounting and Finance
Date:
Subject: Reporting warranties in financial statements
This memorandum is in response to your comment on my proposal for the
Both the conservatism and matching principles apply to accounting for
warranties. Conservatism requires us to include an expense in this year’s
financial statements for costs that we may or may not pay in the future.
Your comment also raised the objection that we don’t know what costs will
be. If they are not reasonably estimable, generally accepted accounting
principles will allow us to leave them out of the financial statements. But
we must describe the contingency in the notes. I will be checking with the
Taking It to the Net — BTN 11-5
1. McDonald’s 2013 current liabilities include the following:
Accounts payable
2. The portion of long-term debt maturing in the next 12 months ($
millions) is:
Note: McDonald’s states in its MD&A (of its 2013 Annual Report) under the
FINANCING AND MARKET RISK section: “Debt maturing in 2014 is
approximately $530 million of long-term corporate debt. In 2014, the Company
expects to issue commercial paper and long-term debt to refinance this
maturing debt.”
3. Times interest earned for McDonald’s as of 12/31/2013
($ millions) 12/31/2013
Net Income.............................................................. $ 5,586.0
Comment: The 16.72 times interest earned ratio seems more than
Teamwork in Action — BTN 11-6
The interest expense in option B does exceed option A. If interest cost
is the only consideration, then Option A is the preferred loan. However,
2. Entries:
2a. Issue date, Option A
2b. Issue date, Option B
2c. Maturity date, Option A
2d. Maturity date, Option B
Teamwork in Action (Concluded)
4. Entries:
4a. Adjusting entry, Option A (Dec. 31)
Dec. 31 Interest Expense..................................................... 50
4b. Adjusting entry, Option B (Dec. 31)
4c. Maturity date entry, Option A
March 1 Interest Expense..................................................... 100
4d. Maturity date entry, Option B
March 31 Interest Expense..................................................... 120
Entrepreneurial Decision — BTN 11-7
1.
Uncharted Play
Income Statement (Prospective)
Current
Operations European Total
Sales............................................ $1,000,000 $ 250,000 $1,250,000
3.
Uncharted Play
Income Statement (Prospective)
Current
Operations European Total
Sales............................................ $1,000,000 $ 400,000 $1,400,000
Entrepreneurial Decision (concluded)
4.
Uncharted Play
Income Statement (Prospective)
Current
Operations European Total
Sales............................................ $1,000,000 $ 100,000 $1,100,000
5. In each of these cases, the company’s times interest earned is at least
23.6, so it appears that if it takes out the loan and can generate at least
$100,000 in sales in Europe, then the company will have little trouble
paying its interest expense.
Hitting the Road — BTN 11-8
There is no formal solution to this problem. A discussion of the importance
of safeguarding social security information would be appropriate especially
with respect to the Administration’s decision to no longer transfer benefit
information online.
Global Decision — BTN 11-9
1. Samsung— Times interest earned
(KRW in millions) Current Year Prior Year
Income before income taxes.................... 38,364,279 29,915,017
*Interest expense is labeled “Finance expense” on Samsung’s consolidated statements of income.
2. Of these three companies, Apple and Google both have superior
coverage of interest expense for the two years analyzed. Specifically,
