Focus on Financials: Apple Inc.
(15-20 min.)
Req. 1
Accrued expenses are expenses that have been incurred but that have
not yet been paid as of the balance sheet date. The accrual basis of
Req. 2 (amounts in millions)
Accrued expenses were $18,453 and $13,856 for 2014 and 2013
respectively. Accrued expenses are a liability account. Since Apple has
not paid an expense that it has incurred, it owes that amount to an
external party creating a liability.
Req. 3 (amounts in millions)
(continued) Apple Inc.
Req. 4 (amounts in millions)
Net working capital:
2014
2013
Current assets –
Current liabilities
=
$68,531 −
$63,448
=
$5,083
$73,286 −
$43,658
=
$29,628
Current ratio:
Total current liabilities
Debt ratio:
2014
2013
Total liabilities
=
$120,292
=
0.52
$83,451
=
0.40
Total assets
$231,839
$207,000
The current ratio and net working capital decreased, and the debt ratio
slightly worsened during 2014. This reveals less liquidity and higher
debt. Also, the size of the firm overall has increased (indicated by total
assets), but its net working capital has decreased, surprisingly as it
Focus on Analysis: Under Armour, Inc.
(15-20 min.)
Req. 1
Revenues are recognized at the time that a transfer of title and risk of
loss occurs. Additionally, Under Armour recognizes revenue from
licensees in the form of initial fees, continuing fees, renewal fees, and
Req. 2
Under Armour’s receivables are primarily from its sales and licensees.
The cash and royalties from the sales and licensees are generally due
within 30 days of the sale. Thus, the receivables are included in
revenues when the sales occur and become an account receivable. The
beginning balance of Accounts Receivable, $210 million, represents
revenue earned in fiscal 2013 but not received (collected in cash) until
(continued) Under Armour, Inc.
Req. 3 (in millions)
“Prepaid expenses and other current assets” include expenses that
Under Armour has paid for, but has not yet used. Some examples of this
could include supplies, insurance, advertising, or rent:
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Supplies ………………………………………………..
23
Cash………………………………………………….
23
Or:
Prepaid Insurance …………………………………
Cash………………………………………………….
23
Or:
Prepaid Rent ………………………………………….
23
Cash………………………………………………….
23
Req. 4
Since depreciation expense increased Accumulated Depreciation by $72
million, a decrease of $27 million ($172 million + $72 million − $217
million) must have occurred as well. This decrease is most likely from
(continued) Under Armour, Inc,
Req. 5
The primary categories of items in Accrued Expenses are Accrued
Compensation and Benefits, and Accrued Marketing Expenses. Accrued
Expenses represent an accrued liability account. When the company
The expense relating to the accrued compensation and benefits was
recorded in the year the expense was incurred—when the employees
performed the work. Accordingly, the $61 million accrued compensation
and benefits represents work performed during fiscal 2014 but not paid
until fiscal 2015 or later. The expense relating to the accrued marketing
expense was recorded in the year the expense was incurred—when the
Group Project
(45 min.)
Req. 1 (after Req. 6)
Req. 2
Abel Electronics, Inc.
Income Statement
Three Months Ended December 31, 2016
Service revenue ($33,000 + $3,000)
$36,000
Expenses:
Payroll tax expense
$ 575
Rent expense ($3,000 × 1/2)
1,500
Utilities expense
825
Supplies expense
8,500
Salary expense ($3,500 + $5,000 + $500)
9,000
Fuel and maintenance expense
1,200
Insurance expense
700
Advertising expense
Depreciation expense – truck
($6,000/5 × 3/12)
300
Total expenses
Net income
Depreciation expense – tools
($1,200/3 × 3/12)
100
(continued) Group Project
Req. 3
Abel Electronics, Inc.
Statement of Retained Earnings
Three Months Ended December 31, 2016
Retained earnings, October 1, 2016 ………………
$ 0
Add: Net income …………………………………………
10,920
Retained earnings, December 31, 2016 ………….
$10,920
Req. 4
Abel Electronics, Inc.
Balance Sheet
December 31, 2016
ASSETS
LIABILITIES
Current assets:
Current liabilities:
Cash
$10,800
Salary payable
$ 500
Phone deposit
Supplies
Total current assets
Accounts receivable
3,000
Advertising payable
100
STOCKHOLDERS’ EQUITY
Long-term assets:
Common stock
10,000
Tools
Less: accum.
deprec.
$1,200
(100)
1,100
Retained earnings
10,920
Truck
$6,000
Less: accum.
deprec.
5,700
Total liabilities and
Total assets
$23,200
(continued) Group Project
Req. 5
Abel Electronics, Inc.
Statement of Cash Flows
Three Months Ended December 31, 2014
Cash flows from operating activities:
Collections from customers…………………
$ 33,000
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of truck …………………………………
$(6,000)
Purchase of tools …………………………………
Prepaid for phone ………………………………..
(1,200)
(100)
Net cash used for investing activities ……………..
(7,300)
Cash flows from financing activities:
Issuance of common stock …………………..
Net cash provided by financing activities ……….
* Payments to suppliers include supplies ($9,500), rent ($3,000), fuel
and maintenance ($1,200), insurance ($700), utilities ($825), advertising
($600), and payroll taxes ($575).
(continued) Group Project
Req. 6
Current ratio $16,400/2,280 = 7.19
With a current ratio of 7.19, the company has a high amount of liquidity.
With a debt ratio of 0.098, the company has very low debt ratio. They can
easily take on more debt.
If the 5 year loan for $15,000 is granted, the ratios would change as
follows:
Current ratio ($16,400 + $15,000)/$2,280 = 13.77
Net working capital = $16,400 + $15,000 – $2,280 = $29,120
Debt ratio = ($2,280 + $15,000)/($23,200 + $15,000) = 0.452
Req. 1
ASSETS
LIABILITIES + STOCKHOLDERS’
EQUITY
Cash
Acct.
Rec.
Phone
Deposit
Supplies
Prepaid
Rent
Truck
Tools
Salary
Pay.
Advert.
Pay.
Income
Taxes
Pay.
Common
Stock
Retained
Earnings
Stockholders’
Equity Transaction
10,000
10,000
Issued stock
(6,000)
6,000
(1,200)
1,200
(3,000)
3,000
(100)
100
33,000
33,000
Service Rev.
3,000
3,000
Service Rev.
(5,000)
(5,000)
Salary Exp.
(3,500)
(3,500)
Salary Exp.
500
(500)
Salary Exp.
(575)
(575)
Payroll Tax Exp.
(9,500)
9,500
(8,500)
(8,500)
Supplies Exp.
(1,200)
(1,200)
Fuel & Maint. Exp.
(700)
(700)
Insurance Exp.
(825)
(825)
Utilities Exp.
Advert. Exp.
(1,500)
(1,500)
1,680
(1,680)
Income Tax Exp.
(300)
(300)
Depr. Exp.–Truck
(100)
(100)
Depr. Exp.–Tools
10,800
3,000
100
1,000
1,500
5,700
1,100
500
100
1,680
10,000
10,920
Totals
