Acct 2113-11 Skills Development
Skills Development Cases
Yige zhang
1219313
ACCT 2113-01
Chapter 1
S1-1
1. What is the amount of net income for the year ended February 1, 2009?
Net Income=$2,260,000,000 2. What is the amount of sales revenue was earned for the year ended February 1, 2009?
Sales Revenue=$71,288,000,000 3. How much inventory does the company have on February 1, 2009?
Inventory=$10,673,000,000
4. How much does The Home Depot have in cash on February 1, 2009?
Cash=$519,000,000
5. The Home Depot’s stock is traded on the New York Stock Exchange under the symbol HD. What kind of company does this make The Home Depot?
The Home Depot is a public corporation.
S1-2
1. Was Lowe’s net income for the year ended January 30, 2009, greater (or less) than The Home Depot’s?
Low’s net income=$2,195,000,000 …show more content…
The Home Depot’s net income=$2,260,000,000 After comparing these two, Low’s is less than The Home Depot’s. 2. Was Lowe’s sales revenue for the year ended January 30, 2009, greater (or less) than The Home Depot’s?
Lowe’s sales revenue=$48,230,000,000
The Home Depot’s sales revenue=$71,288,000,000
After comparing these two, Low’s is less than The Home Depot’s. 3. Did Lowe’s have more (or less) inventories than The Home Depot at the year ended January 2009?
Lowe’s inventories=$8,209,000,000
The Home Depot’s inventories=$10,673,000,000
After comparing these two, Low’s is less than The Home Depot’s. 4. Did Lowe’s have more (or less) cash than The Home Depot at the year ended January 2009?
Lowe’s cash=$245,000,000
The Home Depot’s cash= $519,000,000
After comparing these two, Low’s is less than The Home Depot’s. 5. Is Lowe’s the same type of business organization as The Home Depot?
Yes, both of these two are public corporations which provide home improvement. 6. On an overall basis, was Lowe’s or The Home Depot more successful in the 2008 fiscal year?
The Home Depot was more successful in the 2008 fiscal year based on an overall basis. Because The Home Depot’s net income, sales revenue, inventories, cash are more than Lowe’s.
Chapter2
S2-1
1. What is the company’s fiscal year-end? Where did you find the exact date?
The company’s fiscal year ends on the Sunday nearest to January 31. Fiscal years ended February 1, 2009, and January 28, 2007, which include 52 weeks. Fiscal year ended February 3, 2008, which includes 53 weeks.
I found in the exact date from notes to consolidated financial statements. 2. Use the company’s balance sheet to determine the amounts in the accounting equation (A=L+SE).
February 1, 2009: $41,164,000,000=$23,387,000,000+$17,777,000,000
February 3, 2008: $44,324,000,000=$266,610,000,000+$1,771,400,000 3. What is the amount of the company’s current liabilities on February 1, 2009? Are current assets sufficient to cover current liabilities?
Current liabilities=$11,153,000,000
Since the current assets are greater than the current liabilities, current assets are sufficient to cover current liabilities. 4. Has financing for the company’s investment in assets primarily come from liabilities or stockholders’ equity?
It comes from liabilities.
S2-2
1. Use the company’s balance sheet to determine the amounts in the accounting equation (A=L+SE). Is Lowe’s or The Home Depot larger in terms of total assets?
The Home Depot
February 1, 2009: 41,164,000,000=23,387,000,000+177,777,000,000
February 3, 2008: 44,324,000,000=26,610,000,000+17,714,000,000
Lowe’s
January 30, 2009: 32,686,000,000= 14,631,000,000+18,055,000,000
February 1, 2008: 30,869,000,000= 14,771,000,000+16,098,000,000
The Home Depot is larger in terms of total assets. 2. Does Lowe’s have more or less current liabilities than The Home Depot at the end of January 2009? Which company has a larger current ratio?
Lowe’s has less current liability than The Home Depot at the end of January 2009.
The Home Depot has a larger current ratio. 3. On the balance sheet, Lowe’s reports inventories of $8,209,000,000. Does this amount represent the expected selling price? Why or why not?
Yes, it does. Since Lowe’s uses the FIFO method, the amount represents the expected selling price. 4. Has financing for Lowe’s investment in assets primarily come from liabilities or stockholder’s equity at January 30, 2009? Thinking back to Chapter1, what does this imply about the risk assumed by Lowe’s investors, relative to those investing in The Home Depot?
Stockholders’ equity.
Lowe’s investors are considered as taking higher risk.
Chapter 3 1. Did The Home Depot’s sales revenues increase or decrease in the year end February 1, 2009? By how much? Calculate this change as a percentage of the precious year’s sales revenues by dividing the amount of the change by the previous year’s sales revenues and multiplying by 100.
The sales revenues decreased in the year end February 1, 2009 by $6,061,000,000.
The percentage =$6,061,000,000/$77,349,000,000*100=7.84% 2. State the amount of the largest expense on the most recent income statement and describe the transaction represented by the expense. Did this expense increase or decrease from the previous year and by what percentage?
On the most recent income statement, the largest expense is selling, general and administrative expense, which equals $17,846,000,000.
The transaction represented by wages expense.
The selling, general and administrative expense increased in the year end February 1, 2009 which equals $793,000,000.
The percentage=$793,000,000/$17,053,000,000*100=4.65%
S3-2
1. Did Lowe’s sales revenues increase or decrease in the year end January 30, 2009, as compared to the previous year? By how much? Calculate this change as a percentage of the previous year’s sales revenues. Is the trend in Lowe’s sales revenues more or less favorable than The Home Depot’s?
The sales revenues decreased in the year end February 30, 2009 by $53,000,000.
The percentage= $53,000,000/$48,283,000,000*100=0.11%
The trend in Lowe’s sales revenue is more favorable than The Home Depot’s. 2. State the amount of the largest expense on the most recent income statement of Lowe’s for the year end January 30, 2009, and describe the transaction represented by the expense. Did this expense increase or decrease from the previous year and by what percentage, as compared to the previous year? Is the trend in Lowe’s largest expense more or less favorable than The Home Depot’s largest expense?
On the most recent income statement, the largest expense is selling, general and administrative expense, which equals $11,074,000,000.
The transaction represented by wages expense.
The selling, general and administrative expense increased in the year end February 1, 2009 which equals $559,000,000.
The percentage=$559,000,000/$10,515,000,000*100=5.32%
The trend in Lowe’s largest expense is more favorable than The Home Depot’s.
Chapter4
S4-1
1. The company’s prepaid Advertising Expenses are included in the February 1, 2009, balance sheet under other current assets. Refer to the notes to the financial statements to determine the amount of the Prepaid Advertising Expenses as of February 1, 2009 (fiscal 2008).
Prepaid advertising expense =$1,227,000,000 2. How much did The Home Depot owe for salaries and related expenses at February 1, 2009? Was this an increase or decrease from the previous year?
Salaries and related expenses=$1,129,000,000
It was increased from the previous year. 3. Refer to the Revenues note in the Summary of Significant Accounting Policies that follows The Home Depot’s statements of cash flows. How does the company account for customer payments received in advance of providing services? What adjusting journal entry must The Home Depot make when it provides these services?
The payment is recorded as deferred revenue until the services or sales are completed. When the services or sales are completed, the payment will be recorded as net sales.
S4-2
1. Refer to the notes to the financial statements to determine how much The Home Depot and Lowe’s each spent on advertising expenses in the year ended January 30, 2009 (fiscal 2008).
Advertising Expenses of The Home Depot: $1,227,000,000.
Advertising Expenses of Lowe’s: $789,000,000
2. How much did The Home Depot and Lowe’s each owe for salaries and wages at January 30, 2009? Provide one reason that would explain the difference between the two companies’ accrued payroll liabilities.
Salaries and Wages Expenses of The Home Depot: $1,129,000,000 Salaries and Wages Expenses of Lowe’s: $434,000,000
Lowe’s has much smaller number of employees than The Home Depot.
Chapter5
S5-1
1. Calculate the debt-to-assets ratio at February 1, 2009, and February 3, 2008. Based on these calculations, has The Home Depot’s financing become more or less risky over these two years? Debt-to-assets ratio at February 1, 2009=0 .57 Debt-to-assets ratio at February 3, 2008=0 .6 As the debt-to-assets ratio became smaller, The Home Depot’s financing has become less risky over these two years. 2. Calculate the asset turnover ratio for the February 2009 and 2008 year-ends. The Home Depot’s total assets at the end of fiscal 2007 were $52,263 million. Based on these calculations, has The Home Depot used its assets more or less efficiently in 2008-2009 than in 2007-2008? Asset turnover ratio for February 2009 year end =1.67 Asset turnover ratio for February 2008 year end =1.6 The Home Depot used its assets more efficiently in 2008-2009 than in 2007-2008. 3. Calculate the net profit margin ratio for 2008-2009 and 2007-2008. Based on these calculations, has The Home Depot generated more or less profit per dollar of sales in 2008-2009 than in 2007-2008? Net profit margin ratio for 2008-2009 =0 .03 Net profit margin ratio for 2007-2008 =0 .06 The Home Depot generated less profit per dollar of sales in 2008-2009 than in 2007-2008.
S5-2
1. Calculate the debt-to-assets ratio for Lowe’s at January 30, 2009. Based on this calculation, was Lowe’s financing more or less risky than The Home Depot’s at the end of January 2009? Debt-to-assets ratio at January 30, 2009=0.45 Lowe’s financing was less risky than The Home Depot’s at the end of January 2009. 2. Calculate the asset turnover ratio for Lowe’s for the year ended January 30, 2009. Lowe’s total assets at the end of fiscal 2007 were $30,869 million. Based on this calculation, did Lowe’s use its assets more or less efficiently than The Home Depot in 2008-2009? Asset turnover ratio for the year ended January 30, 2009 =1.52 Lowe’s used its assets less efficiently than The Home Depot in 2008-2009. 3. Calculate the net profit margin ratio for Lowe’s for the year ended January 30, 2009. Based on this calculation, did Lowe’s generate more or less profit per dollar of sales than The Home Depot in 2008-2009? Net profit margin ratio for the year ended January 30, 2009=0.05 Lowe’s generated more profit per dollar of sales than The Home Depot in 2008-2009.
Chapter 6
S6-1
1. What amount of Net Sales does the company report during the year ended February 1, 2009?
Net Sales=$71,288,000,000. 2. Assuming that Cost of Sales is the same thing as Cost of Goods Sold, compute the company’s gross profit percentage for the most recent two years. Has it risen or fallen? Explain the meaning of the change.
Fiscal Year Ended:
February 1, 2009 Gross profit percentage=33.65%
February 3, 2008 Gross profit percentage=33.61%.
It has risen. The costs of The Home Depot are falling at a faster rate than the sales. 3. Assume that The Home Depot experienced no shrinkage in the most current year. Using the balance sheet and income statement, estimate the amount of purchases in the year ended February 1, 2009.
The total amount of purchases =$21,301,000,000 4. Refer to the “Report of Independent Registered Public Accounting Firm” in The Home Depot’s annual report and Lowe’s annual report. To what “inherent limitations” of internal control is KPMG
referring?
We can find out the Human’s fallibility, collusion, and management override are the inherent limitations.
S6-2 1. Does Lowe’s report higher or lower Net Sales than The Home Depot during the year ending near January 31, 2009?
Lowe’s reports lower Net Sales than The Home Depot’s. 2. Assuming that Cost of Sales is the same thing as Cost of Goods Sold, compute Lowe’s gross profit percentage for the most recent two years. Is it greater or less than The Home Depot’s? Based on this, where are consumers likely to find lower mark-ups?
Fiscal Year Ended:
January 30, 2009 Gross profit percentage= 34.21%
February 1, 2008 Gross profit percentage=34.64%.
It is greater than The Home Depot’s.
Consumers will likely to find Lowe’s has lower mark-ups. 3. Assume that Lowe’s and The Home Depot experienced no shrinkage in the most recent year. Using the balance sheet and income statement, estimate the amount of purchases in the 2008-2009 year. How much greater (or less) were Lowe’s purchases than The Home Depot’s in that year?
Lowe’s purchased $6,299,000,000 less than The Home Depot. 4. Refer to the “Report of Independent Registered Public Accounting Firm” in The Home Depot’s annual report and Lowe’s annual report. Were the two companies’ internal controls operating effectively? Yes.
Chapter 7
S7-1 1. How much inventory does the company hold on February 1, 2009? Does this represent an increase or decrease in comparison to the prior year? Inventory on February 1, 2009= $10,673,000,000 Inventory on February 3, 2008= $11,731,000,000 This represents a decrease in comparison to the prior year. 2. Does the company follow the lower of cost or market rule? What method(s) does the company use to determine the cost of its inventory? Describe where you found this information. Yes, it does. Most of the company uses the lower of cost or market and FIFO to determine the cost of its inventory, while the 18% uses the lower of cost or market as determined by a cost method. It was found in the notes of The Home Depot’s Fiscal 2008 Annual Report in Merchandise Inventories. 3. Compute to one decimal place the company’s inventory turnover ratio and days to sell for the most recent year. Inventory turnover ratio for 2008=4.2 Days to sell for 2008=86.4 4. Does the company believe FIFO, or weighted average cost, is a better method? The company believes FIFO is a better method.
S7-2
1. Does Lowe’s hold more or less inventory than The Home Depot at the end of January 2009? Inventory of Lowe’s at the end of January, 2009= $8,209,000,000 Inventory of The Home Depot at the end of January, 2009=$10,673,000,000 Lowe’s held much less inventory than The Home Depot at the end of January 2009.
2. Does Lowe’s follow the lower of cost or market rule? What method does Lowe’s use to determine the cost of its inventory? Comment on how this affects comparisons you might make between Lowe’s and The Home Depot’s inventory turnover ratios. Yes, it does. Lowe’s uses FIFO to determine the cost of its inventory. It’s much easier to compare inventory turnover ratios Lowe’s and The Home Depot.
3. Compute to one decimal place Lowe’s inventory turnover ratio and days to sell for the 2008-09 fiscal year and compare to The Home Depot’s. What does this analysis suggest to you? Inventory turnover ratio for 2008= 4.0 Days to sell for 2008= 91.0 By comparing the inventory turnover ratio and days to sell between The Home Depot and Lowe’s, which means The Home Depot has a faster turnover and it takes much less days to sell than Lowe’s, which means that it takes a shorter time to sell its inventory.
Chapter8
S8-1
1. Does the company report an Allowance for Doubtful Accounts on the balance sheet or in the notes? Explain why it does or does not. (Hint: The company refers to its Allowance for Doubtful Accounts as a “Valuation Reserve” related to Accounts Receivable.) No, it does not. The allowance for doubtful accounts can be found on the balance sheet. 2. Compute the company’s receivables turnover ratio and days to collect for the year ended February 1, 2009. The receivable turnover ratio=63.9 Days to collect=5.7 S8-2 1. Does the company report Accounts Receivable or an Allowance for Doubtful Accounts in its financial statements? Explain why it does or does not. Allowance for doubtful accounts. It is recorded to reduce the carrying amount of deferred tax assets. 2. Based on your observations for requirement 1, describe the usefulness of the receivables turnover ratio and days to collect analyses for companies that are involved in home improvement retail sales. A high receivables turnover ratio refers a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. A low receivables turnover ratio implies the company ensures the timely collection of imparted credit which is not earning interest of the firm.
Chapter9
S9-1
1. What method of depreciation does the company use?
It used straight-line method. 2. What is the amount of Accumulated Depreciation at February 1, 2009? What percentage is this of the total cost of property and equipment?
Accumulated depreciation=$10,243,000,000
The percentage=28.1% 3. For depreciation purposes, what is the range of estimated useful lives for the buildings?
The range of estimated useful lives for the buildings:4 to 45years. 4. What amount of Depreciation and Amortization Expense was reported for the year ended February 1, 2009? What percentage of net sales is it?
The depreciation and amortization expenses=$1,785,000,000
The percentage=2.5% 5. What is the fixed asset turnover ratio for the current year?
Fixed asset turnover ratio for the year ended February 1, 2009=2.0
Fixed asset turnover ratio for the year ended February 3, 2008=2.1 6. For each of the preceding questions, where did you locate the information?
The information I found is in the financial statements.
S9-2 1. What method of depreciation does Lowe’s use?
They used straight-line method. 2. Refer to Note 4 in Lowe’s annual report. What amount of Accumulated Depreciation did Lowe’s report at January 30, 2009? What percentage is this of the total cost of property and equipment? Is this a larger (or smaller) percentage of the total cost of property and equipment than for The Home Depot (in S9-1)? What does it suggest to you about the length of time the assets have been depreciated?
Accumulated depreciation=$22,722,000,000 3. Lowe’s estimated useful life of buildings is shorter than that estimated by The Home Depot. How will this affect the fixed asset turnover ratios of the two companies?
Lowe’s ratio would increase more than The Home Depot would, because the fixed asset of Lowe’s is increasing more. 4. What amount of Depreciation Expense was reported on Lowe’s income statement for the year ended January 30, 2009? What percentage of net sales is it? Compare this percentage to that of The Home Depot and describe what this implies about the two companies’ operations.
Depreciation expense=$1,539,000,000
The percentage of Net Sales=3.2%
The percentage of Lowe’s is higher than that of The Home Depot, the depreciation expense of Lowe’s has more effect on Lowe’s income. It implies that The Home Depot is more efficient than Low’s. 5. What is Lowe’s fixed asset turnover ratio for the current year? Compare this ratio to that of The Home Depot and describe what it implies about the operations of the two companies.
Fixed asset turnover ratio=2.1
After comparing, I find out fixed asset turnover ratios of these two companies’ are approximately the same, which means that The Home Depot and Lowe’s are efficient in the same level about making profit from fixed asset.
Chapter10
S10-1
1. Calculate, to two decimal places, the company’s quick ratio using amounts reported in its financial statements for the year ended February 1, 2009, and February 3, 2008. What do the changes in this ratio suggest about the company’s ability to quickly pay its liabilities?
The Home Depot’s quick ratio for the year ended February 1, 2009=0.24
The Home Depot’s quick ratio for the year ended February 3, 2008=0.23
These two ratios indicate that the company got more quickly to cover the liabilities. 2. Calculate, to two decimal places, the company’s times interest earned ratio for the year ended February 1, 2009. Does this ratio cause you any concern about the company’s ability to meet future interest obligations as they become due? Times interest earned ratio for the year ended February 1, 2009=38.4
No, it does not.
S10-2
1. Calculate, to two decimal places, the companies’ quick ratios using amounts reported in the statements for the years ending in early 2009 and 2008. What do the changes in this ratio suggest about the companies’ ability to quickly pay their liabilities? Does it appear that Lowe’s or The Home Depot is in a less secure position?
The Home Depot’s quick ratio for the year ended on early 2009=0.24
The Home Depot’s quick ratio for the year ended on early 2008=0.23
Lowe’s quick ratio for the year ended on early 2009=0.13
By compared the quick ratio between these two companies, The Home Depot’s is capable of paying their liabilities more quickly than Lowe’s does.
It appears that Lowe’s is in a less secure position. 2. Calculate, to two decimal places, the companies’ times interest earned ratios for the years ending in early 2009. Does it appear that Lowe’s or The Home Depot will be better able to meet future interest obligations as they become payable?
The Home Depot’s times interest earned ratio for the years ended on early 2009=6.99
The Home Depot’s times interest earned ratio for the years ended on early 2008=10.41
Lowe’s times interest earned ratio for the years ended on early 2009=47.41
Lowe’s times interest earned ratio for the years ended on early 2008=63.97
It appears that Lowe’s will be better able to meet future interest obligations.
Chapter11
S11-1
1. As of February 1, 2009, how many shares of common stock were authorized? How many shares were issued? How many shares were held in treasury? What does this suggest to you about the number of shares outstanding?
There is 1707 million shares of common stock were authorized.
There is 1707 million shares were issued.
11 million shares were held in treasury. The outstanding shares were 1696 million. 2. According to the Retained Earnings column in the Statement of Stockholders’ Equity, what was the total dollar amount of cash dividends declared during the year ended February 1, 2009?
The total dollar amount of cash dividends declared was $1521 million 3. According to the income statement, how has The Home Depot’s net earnings changed over the past three years? Has the company’s basic earnings per share changed over the past three years? Are these patterns consistent?
The net earnings of The Home Depot were continuously decreasing over the past three years.
Yes, it was decreasing over the past three years.
No there are not.
S11-2
1. Did Lowe’s have more or fewer authorized shares of common stock than The Home Depot at the beginning of February 2009?
Lowe’s had less shares of common stock than The Home Depot does at the beginning of 2009. 2. From the Retained Earnings column in the statement of stockholders’ equity, what total amount of cash dividends did Lowe’s declare during the year ended January 30, 2009? Compared to The Home Depot, is Lowe’s policy on dividends better, worse, or just different?
The total amount of cash dividends did Lowe’s declare during the year ended January 30, 2009 was $491 million.
Lowe’s policy on dividends is worse than The Home Depot’s. 3. How have Lowe’s net earnings changed over the past three years? How have the company’s basic earnings per share changed over the past three years? According to financial statement note 11, were the changes in EPS caused only by changes in Lowe’s net earnings?
The net earnings of Lowe’s increased from 2007 to 2008, and then decreased.
The basic earnings per share decreased over the past three years.
No, it does not.
Yige zhang
1219313
ACCT 2113-01
Chapter 1
S1-1
1. What is the amount of net income for the year ended February 1, 2009?
Net Income=$2,260,000,000 2. What is the amount of sales revenue was earned for the year ended February 1, 2009?
Sales Revenue=$71,288,000,000 3. How much inventory does the company have on February 1, 2009?
Inventory=$10,673,000,000
4. How much does The Home Depot have in cash on February 1, 2009?
Cash=$519,000,000
5. The Home Depot’s stock is traded on the New York Stock Exchange under the symbol HD. What kind of company does this make The Home Depot?
The Home Depot is a public corporation.
S1-2
1. Was Lowe’s net income for the year ended January 30, 2009, greater (or less) than The Home Depot’s?
Low’s net income=$2,195,000,000 …show more content…
The Home Depot’s net income=$2,260,000,000 After comparing these two, Low’s is less than The Home Depot’s. 2. Was Lowe’s sales revenue for the year ended January 30, 2009, greater (or less) than The Home Depot’s?
Lowe’s sales revenue=$48,230,000,000
The Home Depot’s sales revenue=$71,288,000,000
After comparing these two, Low’s is less than The Home Depot’s. 3. Did Lowe’s have more (or less) inventories than The Home Depot at the year ended January 2009?
Lowe’s inventories=$8,209,000,000
The Home Depot’s inventories=$10,673,000,000
After comparing these two, Low’s is less than The Home Depot’s. 4. Did Lowe’s have more (or less) cash than The Home Depot at the year ended January 2009?
Lowe’s cash=$245,000,000
The Home Depot’s cash= $519,000,000
After comparing these two, Low’s is less than The Home Depot’s. 5. Is Lowe’s the same type of business organization as The Home Depot?
Yes, both of these two are public corporations which provide home improvement. 6. On an overall basis, was Lowe’s or The Home Depot more successful in the 2008 fiscal year?
The Home Depot was more successful in the 2008 fiscal year based on an overall basis. Because The Home Depot’s net income, sales revenue, inventories, cash are more than Lowe’s.
Chapter2
S2-1
1. What is the company’s fiscal year-end? Where did you find the exact date?
The company’s fiscal year ends on the Sunday nearest to January 31. Fiscal years ended February 1, 2009, and January 28, 2007, which include 52 weeks. Fiscal year ended February 3, 2008, which includes 53 weeks.
I found in the exact date from notes to consolidated financial statements. 2. Use the company’s balance sheet to determine the amounts in the accounting equation (A=L+SE).
February 1, 2009: $41,164,000,000=$23,387,000,000+$17,777,000,000
February 3, 2008: $44,324,000,000=$266,610,000,000+$1,771,400,000 3. What is the amount of the company’s current liabilities on February 1, 2009? Are current assets sufficient to cover current liabilities?
Current liabilities=$11,153,000,000
Since the current assets are greater than the current liabilities, current assets are sufficient to cover current liabilities. 4. Has financing for the company’s investment in assets primarily come from liabilities or stockholders’ equity?
It comes from liabilities.
S2-2
1. Use the company’s balance sheet to determine the amounts in the accounting equation (A=L+SE). Is Lowe’s or The Home Depot larger in terms of total assets?
The Home Depot
February 1, 2009: 41,164,000,000=23,387,000,000+177,777,000,000
February 3, 2008: 44,324,000,000=26,610,000,000+17,714,000,000
Lowe’s
January 30, 2009: 32,686,000,000= 14,631,000,000+18,055,000,000
February 1, 2008: 30,869,000,000= 14,771,000,000+16,098,000,000
The Home Depot is larger in terms of total assets. 2. Does Lowe’s have more or less current liabilities than The Home Depot at the end of January 2009? Which company has a larger current ratio?
Lowe’s has less current liability than The Home Depot at the end of January 2009.
The Home Depot has a larger current ratio. 3. On the balance sheet, Lowe’s reports inventories of $8,209,000,000. Does this amount represent the expected selling price? Why or why not?
Yes, it does. Since Lowe’s uses the FIFO method, the amount represents the expected selling price. 4. Has financing for Lowe’s investment in assets primarily come from liabilities or stockholder’s equity at January 30, 2009? Thinking back to Chapter1, what does this imply about the risk assumed by Lowe’s investors, relative to those investing in The Home Depot?
Stockholders’ equity.
Lowe’s investors are considered as taking higher risk.
Chapter 3 1. Did The Home Depot’s sales revenues increase or decrease in the year end February 1, 2009? By how much? Calculate this change as a percentage of the precious year’s sales revenues by dividing the amount of the change by the previous year’s sales revenues and multiplying by 100.
The sales revenues decreased in the year end February 1, 2009 by $6,061,000,000.
The percentage =$6,061,000,000/$77,349,000,000*100=7.84% 2. State the amount of the largest expense on the most recent income statement and describe the transaction represented by the expense. Did this expense increase or decrease from the previous year and by what percentage?
On the most recent income statement, the largest expense is selling, general and administrative expense, which equals $17,846,000,000.
The transaction represented by wages expense.
The selling, general and administrative expense increased in the year end February 1, 2009 which equals $793,000,000.
The percentage=$793,000,000/$17,053,000,000*100=4.65%
S3-2
1. Did Lowe’s sales revenues increase or decrease in the year end January 30, 2009, as compared to the previous year? By how much? Calculate this change as a percentage of the previous year’s sales revenues. Is the trend in Lowe’s sales revenues more or less favorable than The Home Depot’s?
The sales revenues decreased in the year end February 30, 2009 by $53,000,000.
The percentage= $53,000,000/$48,283,000,000*100=0.11%
The trend in Lowe’s sales revenue is more favorable than The Home Depot’s. 2. State the amount of the largest expense on the most recent income statement of Lowe’s for the year end January 30, 2009, and describe the transaction represented by the expense. Did this expense increase or decrease from the previous year and by what percentage, as compared to the previous year? Is the trend in Lowe’s largest expense more or less favorable than The Home Depot’s largest expense?
On the most recent income statement, the largest expense is selling, general and administrative expense, which equals $11,074,000,000.
The transaction represented by wages expense.
The selling, general and administrative expense increased in the year end February 1, 2009 which equals $559,000,000.
The percentage=$559,000,000/$10,515,000,000*100=5.32%
The trend in Lowe’s largest expense is more favorable than The Home Depot’s.
Chapter4
S4-1
1. The company’s prepaid Advertising Expenses are included in the February 1, 2009, balance sheet under other current assets. Refer to the notes to the financial statements to determine the amount of the Prepaid Advertising Expenses as of February 1, 2009 (fiscal 2008).
Prepaid advertising expense =$1,227,000,000 2. How much did The Home Depot owe for salaries and related expenses at February 1, 2009? Was this an increase or decrease from the previous year?
Salaries and related expenses=$1,129,000,000
It was increased from the previous year. 3. Refer to the Revenues note in the Summary of Significant Accounting Policies that follows The Home Depot’s statements of cash flows. How does the company account for customer payments received in advance of providing services? What adjusting journal entry must The Home Depot make when it provides these services?
The payment is recorded as deferred revenue until the services or sales are completed. When the services or sales are completed, the payment will be recorded as net sales.
S4-2
1. Refer to the notes to the financial statements to determine how much The Home Depot and Lowe’s each spent on advertising expenses in the year ended January 30, 2009 (fiscal 2008).
Advertising Expenses of The Home Depot: $1,227,000,000.
Advertising Expenses of Lowe’s: $789,000,000
2. How much did The Home Depot and Lowe’s each owe for salaries and wages at January 30, 2009? Provide one reason that would explain the difference between the two companies’ accrued payroll liabilities.
Salaries and Wages Expenses of The Home Depot: $1,129,000,000 Salaries and Wages Expenses of Lowe’s: $434,000,000
Lowe’s has much smaller number of employees than The Home Depot.
Chapter5
S5-1
1. Calculate the debt-to-assets ratio at February 1, 2009, and February 3, 2008. Based on these calculations, has The Home Depot’s financing become more or less risky over these two years? Debt-to-assets ratio at February 1, 2009=0 .57 Debt-to-assets ratio at February 3, 2008=0 .6 As the debt-to-assets ratio became smaller, The Home Depot’s financing has become less risky over these two years. 2. Calculate the asset turnover ratio for the February 2009 and 2008 year-ends. The Home Depot’s total assets at the end of fiscal 2007 were $52,263 million. Based on these calculations, has The Home Depot used its assets more or less efficiently in 2008-2009 than in 2007-2008? Asset turnover ratio for February 2009 year end =1.67 Asset turnover ratio for February 2008 year end =1.6 The Home Depot used its assets more efficiently in 2008-2009 than in 2007-2008. 3. Calculate the net profit margin ratio for 2008-2009 and 2007-2008. Based on these calculations, has The Home Depot generated more or less profit per dollar of sales in 2008-2009 than in 2007-2008? Net profit margin ratio for 2008-2009 =0 .03 Net profit margin ratio for 2007-2008 =0 .06 The Home Depot generated less profit per dollar of sales in 2008-2009 than in 2007-2008.
S5-2
1. Calculate the debt-to-assets ratio for Lowe’s at January 30, 2009. Based on this calculation, was Lowe’s financing more or less risky than The Home Depot’s at the end of January 2009? Debt-to-assets ratio at January 30, 2009=0.45 Lowe’s financing was less risky than The Home Depot’s at the end of January 2009. 2. Calculate the asset turnover ratio for Lowe’s for the year ended January 30, 2009. Lowe’s total assets at the end of fiscal 2007 were $30,869 million. Based on this calculation, did Lowe’s use its assets more or less efficiently than The Home Depot in 2008-2009? Asset turnover ratio for the year ended January 30, 2009 =1.52 Lowe’s used its assets less efficiently than The Home Depot in 2008-2009. 3. Calculate the net profit margin ratio for Lowe’s for the year ended January 30, 2009. Based on this calculation, did Lowe’s generate more or less profit per dollar of sales than The Home Depot in 2008-2009? Net profit margin ratio for the year ended January 30, 2009=0.05 Lowe’s generated more profit per dollar of sales than The Home Depot in 2008-2009.
Chapter 6
S6-1
1. What amount of Net Sales does the company report during the year ended February 1, 2009?
Net Sales=$71,288,000,000. 2. Assuming that Cost of Sales is the same thing as Cost of Goods Sold, compute the company’s gross profit percentage for the most recent two years. Has it risen or fallen? Explain the meaning of the change.
Fiscal Year Ended:
February 1, 2009 Gross profit percentage=33.65%
February 3, 2008 Gross profit percentage=33.61%.
It has risen. The costs of The Home Depot are falling at a faster rate than the sales. 3. Assume that The Home Depot experienced no shrinkage in the most current year. Using the balance sheet and income statement, estimate the amount of purchases in the year ended February 1, 2009.
The total amount of purchases =$21,301,000,000 4. Refer to the “Report of Independent Registered Public Accounting Firm” in The Home Depot’s annual report and Lowe’s annual report. To what “inherent limitations” of internal control is KPMG
referring?
We can find out the Human’s fallibility, collusion, and management override are the inherent limitations.
S6-2 1. Does Lowe’s report higher or lower Net Sales than The Home Depot during the year ending near January 31, 2009?
Lowe’s reports lower Net Sales than The Home Depot’s. 2. Assuming that Cost of Sales is the same thing as Cost of Goods Sold, compute Lowe’s gross profit percentage for the most recent two years. Is it greater or less than The Home Depot’s? Based on this, where are consumers likely to find lower mark-ups?
Fiscal Year Ended:
January 30, 2009 Gross profit percentage= 34.21%
February 1, 2008 Gross profit percentage=34.64%.
It is greater than The Home Depot’s.
Consumers will likely to find Lowe’s has lower mark-ups. 3. Assume that Lowe’s and The Home Depot experienced no shrinkage in the most recent year. Using the balance sheet and income statement, estimate the amount of purchases in the 2008-2009 year. How much greater (or less) were Lowe’s purchases than The Home Depot’s in that year?
Lowe’s purchased $6,299,000,000 less than The Home Depot. 4. Refer to the “Report of Independent Registered Public Accounting Firm” in The Home Depot’s annual report and Lowe’s annual report. Were the two companies’ internal controls operating effectively? Yes.
Chapter 7
S7-1 1. How much inventory does the company hold on February 1, 2009? Does this represent an increase or decrease in comparison to the prior year? Inventory on February 1, 2009= $10,673,000,000 Inventory on February 3, 2008= $11,731,000,000 This represents a decrease in comparison to the prior year. 2. Does the company follow the lower of cost or market rule? What method(s) does the company use to determine the cost of its inventory? Describe where you found this information. Yes, it does. Most of the company uses the lower of cost or market and FIFO to determine the cost of its inventory, while the 18% uses the lower of cost or market as determined by a cost method. It was found in the notes of The Home Depot’s Fiscal 2008 Annual Report in Merchandise Inventories. 3. Compute to one decimal place the company’s inventory turnover ratio and days to sell for the most recent year. Inventory turnover ratio for 2008=4.2 Days to sell for 2008=86.4 4. Does the company believe FIFO, or weighted average cost, is a better method? The company believes FIFO is a better method.
S7-2
1. Does Lowe’s hold more or less inventory than The Home Depot at the end of January 2009? Inventory of Lowe’s at the end of January, 2009= $8,209,000,000 Inventory of The Home Depot at the end of January, 2009=$10,673,000,000 Lowe’s held much less inventory than The Home Depot at the end of January 2009.
2. Does Lowe’s follow the lower of cost or market rule? What method does Lowe’s use to determine the cost of its inventory? Comment on how this affects comparisons you might make between Lowe’s and The Home Depot’s inventory turnover ratios. Yes, it does. Lowe’s uses FIFO to determine the cost of its inventory. It’s much easier to compare inventory turnover ratios Lowe’s and The Home Depot.
3. Compute to one decimal place Lowe’s inventory turnover ratio and days to sell for the 2008-09 fiscal year and compare to The Home Depot’s. What does this analysis suggest to you? Inventory turnover ratio for 2008= 4.0 Days to sell for 2008= 91.0 By comparing the inventory turnover ratio and days to sell between The Home Depot and Lowe’s, which means The Home Depot has a faster turnover and it takes much less days to sell than Lowe’s, which means that it takes a shorter time to sell its inventory.
Chapter8
S8-1
1. Does the company report an Allowance for Doubtful Accounts on the balance sheet or in the notes? Explain why it does or does not. (Hint: The company refers to its Allowance for Doubtful Accounts as a “Valuation Reserve” related to Accounts Receivable.) No, it does not. The allowance for doubtful accounts can be found on the balance sheet. 2. Compute the company’s receivables turnover ratio and days to collect for the year ended February 1, 2009. The receivable turnover ratio=63.9 Days to collect=5.7 S8-2 1. Does the company report Accounts Receivable or an Allowance for Doubtful Accounts in its financial statements? Explain why it does or does not. Allowance for doubtful accounts. It is recorded to reduce the carrying amount of deferred tax assets. 2. Based on your observations for requirement 1, describe the usefulness of the receivables turnover ratio and days to collect analyses for companies that are involved in home improvement retail sales. A high receivables turnover ratio refers a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. A low receivables turnover ratio implies the company ensures the timely collection of imparted credit which is not earning interest of the firm.
Chapter9
S9-1
1. What method of depreciation does the company use?
It used straight-line method. 2. What is the amount of Accumulated Depreciation at February 1, 2009? What percentage is this of the total cost of property and equipment?
Accumulated depreciation=$10,243,000,000
The percentage=28.1% 3. For depreciation purposes, what is the range of estimated useful lives for the buildings?
The range of estimated useful lives for the buildings:4 to 45years. 4. What amount of Depreciation and Amortization Expense was reported for the year ended February 1, 2009? What percentage of net sales is it?
The depreciation and amortization expenses=$1,785,000,000
The percentage=2.5% 5. What is the fixed asset turnover ratio for the current year?
Fixed asset turnover ratio for the year ended February 1, 2009=2.0
Fixed asset turnover ratio for the year ended February 3, 2008=2.1 6. For each of the preceding questions, where did you locate the information?
The information I found is in the financial statements.
S9-2 1. What method of depreciation does Lowe’s use?
They used straight-line method. 2. Refer to Note 4 in Lowe’s annual report. What amount of Accumulated Depreciation did Lowe’s report at January 30, 2009? What percentage is this of the total cost of property and equipment? Is this a larger (or smaller) percentage of the total cost of property and equipment than for The Home Depot (in S9-1)? What does it suggest to you about the length of time the assets have been depreciated?
Accumulated depreciation=$22,722,000,000 3. Lowe’s estimated useful life of buildings is shorter than that estimated by The Home Depot. How will this affect the fixed asset turnover ratios of the two companies?
Lowe’s ratio would increase more than The Home Depot would, because the fixed asset of Lowe’s is increasing more. 4. What amount of Depreciation Expense was reported on Lowe’s income statement for the year ended January 30, 2009? What percentage of net sales is it? Compare this percentage to that of The Home Depot and describe what this implies about the two companies’ operations.
Depreciation expense=$1,539,000,000
The percentage of Net Sales=3.2%
The percentage of Lowe’s is higher than that of The Home Depot, the depreciation expense of Lowe’s has more effect on Lowe’s income. It implies that The Home Depot is more efficient than Low’s. 5. What is Lowe’s fixed asset turnover ratio for the current year? Compare this ratio to that of The Home Depot and describe what it implies about the operations of the two companies.
Fixed asset turnover ratio=2.1
After comparing, I find out fixed asset turnover ratios of these two companies’ are approximately the same, which means that The Home Depot and Lowe’s are efficient in the same level about making profit from fixed asset.
Chapter10
S10-1
1. Calculate, to two decimal places, the company’s quick ratio using amounts reported in its financial statements for the year ended February 1, 2009, and February 3, 2008. What do the changes in this ratio suggest about the company’s ability to quickly pay its liabilities?
The Home Depot’s quick ratio for the year ended February 1, 2009=0.24
The Home Depot’s quick ratio for the year ended February 3, 2008=0.23
These two ratios indicate that the company got more quickly to cover the liabilities. 2. Calculate, to two decimal places, the company’s times interest earned ratio for the year ended February 1, 2009. Does this ratio cause you any concern about the company’s ability to meet future interest obligations as they become due? Times interest earned ratio for the year ended February 1, 2009=38.4
No, it does not.
S10-2
1. Calculate, to two decimal places, the companies’ quick ratios using amounts reported in the statements for the years ending in early 2009 and 2008. What do the changes in this ratio suggest about the companies’ ability to quickly pay their liabilities? Does it appear that Lowe’s or The Home Depot is in a less secure position?
The Home Depot’s quick ratio for the year ended on early 2009=0.24
The Home Depot’s quick ratio for the year ended on early 2008=0.23
Lowe’s quick ratio for the year ended on early 2009=0.13
By compared the quick ratio between these two companies, The Home Depot’s is capable of paying their liabilities more quickly than Lowe’s does.
It appears that Lowe’s is in a less secure position. 2. Calculate, to two decimal places, the companies’ times interest earned ratios for the years ending in early 2009. Does it appear that Lowe’s or The Home Depot will be better able to meet future interest obligations as they become payable?
The Home Depot’s times interest earned ratio for the years ended on early 2009=6.99
The Home Depot’s times interest earned ratio for the years ended on early 2008=10.41
Lowe’s times interest earned ratio for the years ended on early 2009=47.41
Lowe’s times interest earned ratio for the years ended on early 2008=63.97
It appears that Lowe’s will be better able to meet future interest obligations.
Chapter11
S11-1
1. As of February 1, 2009, how many shares of common stock were authorized? How many shares were issued? How many shares were held in treasury? What does this suggest to you about the number of shares outstanding?
There is 1707 million shares of common stock were authorized.
There is 1707 million shares were issued.
11 million shares were held in treasury. The outstanding shares were 1696 million. 2. According to the Retained Earnings column in the Statement of Stockholders’ Equity, what was the total dollar amount of cash dividends declared during the year ended February 1, 2009?
The total dollar amount of cash dividends declared was $1521 million 3. According to the income statement, how has The Home Depot’s net earnings changed over the past three years? Has the company’s basic earnings per share changed over the past three years? Are these patterns consistent?
The net earnings of The Home Depot were continuously decreasing over the past three years.
Yes, it was decreasing over the past three years.
No there are not.
S11-2
1. Did Lowe’s have more or fewer authorized shares of common stock than The Home Depot at the beginning of February 2009?
Lowe’s had less shares of common stock than The Home Depot does at the beginning of 2009. 2. From the Retained Earnings column in the statement of stockholders’ equity, what total amount of cash dividends did Lowe’s declare during the year ended January 30, 2009? Compared to The Home Depot, is Lowe’s policy on dividends better, worse, or just different?
The total amount of cash dividends did Lowe’s declare during the year ended January 30, 2009 was $491 million.
Lowe’s policy on dividends is worse than The Home Depot’s. 3. How have Lowe’s net earnings changed over the past three years? How have the company’s basic earnings per share changed over the past three years? According to financial statement note 11, were the changes in EPS caused only by changes in Lowe’s net earnings?
The net earnings of Lowe’s increased from 2007 to 2008, and then decreased.
The basic earnings per share decreased over the past three years.
No, it does not.