Title: Reporting in Action 1
QA_Ori:
Times interest earned
($ thousands) 2011 2010 2009
Net income $227,575 $147,138 $101,017
Times interest earned ratio 87.9a82.5b37.8c
Analysis comment : For each of these fiscal years, it is obvious that Polaris’s risk of not
Title: Reporting in Action 2
QA_Ori:
Loyalty reward liabilities arise when a customer makes a purchase under a frequent
Title: Reporting in Action 3
QA_Ori:
Title: Reporting in Action 4
QA_Ori:
Title: Comparative Analysis 1
QA_Ori:
Polaris—Times interest earned
($ thousands)
Current
Year
One Year
Prior
Two Years
Prior
Net income $227,575 $147,138 $101,017
Arctic Cat—Times interest earned
($ thousands)
Current
Year
One Year
Prior
Two Years
Prior
Net income (loss) $ 13,007 $1,875 $ (9,508)
a$18,242/$11
Title: Comparative Analysis 2
QA_Ori:
Polaris and Arctic Cat both are in very strong positions in their ability to make any
Title: Ethics Challenge 1
QA_Ori:
It is in Bly’s self-interest to maximize the amount of revenues less warranty expenses so
Title: Ethics Challenge 2
QA_Ori:
Although Bly might be able to affect the amount of revenues less warranty expenses via
Title: Communicating in Practice
QA_Ori:
MEMORANDUM
To: Tom Pretti, General Manager
From: Dusty Johnson, ManagerAccounting and Finance
Date:
Subject: Reporting warranties in financial statements
This memorandum is in response to your comment on my proposal for the treatment of
Both the conservatism and matching principles apply to accounting for warranties.
Conservatism requires us to include an expense in this year’s financial statements for
Your comment also raised the objection that we don’t know what costs will be. If they
are not reasonably estimable, generally accepted accounting principles will allow us to
Title: Taking It to the Net 1
QA_Ori:
McDonald’s 2011 current liabilities include the following:
Accounts payable
Income taxes
Other taxes
Accrued interest
Accrued payroll and other liabilities
Current maturities of long-term debt
Title: Taking It to the Net 2
QA_Ori:
The portion of long-term debt maturing in the next 12 months ($ millions) is:
Title: Taking It to the Net 3
QA_Ori:
Times interest earned for McDonald’s as of 12/31/2011
($ millions) 12/31/2011
Net Income $ 5,503.1
Comment: The 17.26 times interest earned ratio seems more than sufficient for
McDonald’s to cover its interest obligations, and it is higher than the industry average of
15.0.
Title: Teamwork in Action 1
QA_Ori:
The interest expense in option B does exceed option A. If interest cost is the only
Title: Teamwork in Action 2
QA_Ori:
Entries:
2a. Issue date, Option A
June 1 Cash 6,000
Notes Payable 6,000
Borrowed cash by issuing an
Repaid note plus interest.
4. Entries:
4a. Adjusting entry, Option A (Dec. 31)
Dec. 31 Interest Expense 50
4b. Adjusting entry, Option B (Dec. 31)
Dec. 31 Interest Expense 40
4c. Maturity date entry, Option A
March 1 Interest Expense 100
Interest Payable 50
4d. Maturity date entry, Option B
March
31
Interest Expense 120
Title: Entrepreneurial Decision 1
QA_Ori:
SmartIT Staffing
Income Statement (Prospective)
Current
Operations European Total
Sales $1,000,000 $ 250,000 $1,250,000
Operating expenses (55%) 550,000 137,500 687,500
Title: Entrepreneurial Decision 2
QA_Ori:
Times interest earned = $562,500 / $21,000 = 26.8 times
Title: Entrepreneurial Decision 3
QA_Ori:
SmartIT Staffing
Income Statement (Prospective)
Current
Operations European Total
Sales $1,000,000 $ 400,000 $1,400,000
Operating expenses (55%) 550,000 220,000 770,000
Title: Entrepreneurial Decision 4
QA_Ori:
SmartIT Staffing
Income Statement (Prospective)
Current
Operations European Total
Sales $1,000,000 $ 100,000 $1,100,000
Operating expenses (55%) 550,000 55,000 605,000
Title: Entrepreneurial Decision 5
QA_Ori:
Title: Hitting the Road
QA_Ori:
There is no formal solution to this problem. A discussion of the importance of
Title: Global Decision 1
QA_Ori:
KTM— Times interest earned
(Euro in thousands) Current Year One Year Prior
Net income € 20,818 € 2,660
*Income tax is added for the current year, which is not normal. This is because of
a tax loss carryforward in Austria (which is explained in advanced courses).
Title: Entrepreneurial Decision 2
QA_Ori:
Of these three companies, Polaris and Arctic Cat both have superior coverage of
interest expense for the current year. Specifically, Polaris’s times interest earned of
87.9 for the current year and Arctic Cat’s value of 1,658.94, both markedly exceed
KTM’s value of 3.0. The prior year shows similar results with the exception of Arctic