Chapter 5: Question 10Q (page 237)
In its December 31, 2017, balance sheet Oakley Corporation reported as an asset, “Net notes and accounts receivable, $7,100,000.” What other disclosures are necessary?
The business entity must report the amount of both notes and accounts receivables separately.
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Case 4: Amazon.com The incredible growth of Amazon.com has put fear into the hearts of traditional retailers. Amazon’s stock price has soared to amazing levels. However, it is often pointed out in the financial press that it took the company several years to report its first profit. The following financial information is taken from a recent annual report.
(\( in millions) | Current year | Prior year |
Current assets | \)31,327 | $24,625 |
Total assets | 54,505 | 40,159 |
Current liabilities | 28,089 | 22,980 |
Total liabilities | 43,764 | 30,413 |
Cash provided by operations | 6,842 | 5,475 |
Capital expenditures | 4,893 | 3,444 |
Dividend paid | 0 | 0 |
Net income (loss) | (241) | 274 |
Sales | 88,988 | 74,452 |
Instructions
(a) Calculate free cash flow for Amazon for the current and prior years, and discuss its ability to finance expansion from internally generated cash. Thus far Amazon has avoided purchasing large warehouses. Instead, it has used those of others. It is possible, however, that in order to increase customer satisfaction, the company may have to build its own warehouses. If this happens, how might your impression of its ability to finance expansion change?
(b) Discuss any potential implications of the change in Amazon’s cash provided by operations from the prior year to the current year.
Net income for the year for Carrie, Inc. was \(750,000, but the statement of cash flows reports that net cash provided by operating activities was \)860,000. What might account for the difference?
In what section of the balance sheet should the following items appear, and what balance sheet terminology would you use?
(a) Treasury stock (recorded at cost).
(b) Checking account at bank.
(c) Land (held as an investment).
(d) Sinking fund.
(e) Unamortized premium on bonds payable.
(f) Copyrights.
(g) Pension fund assets.
(h) Premium on common stock.
(i) Long-term investments (pledged against bank loans payable).
Refer to the definition of assets on page 204. Discuss how a leased building might qualify as an asset of the lessee (tenant) under this definition.
Crane Corporation has the following accounts included in its December 31, 2017, trial balance: Equity Investments (trading) \(21,000, Goodwill \)150,000, Prepaid Insurance \(12,000, Patents \)220,000, and Franchises $130,000. Prepare the intangible assets section of the balance sheet.
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