Project #39429 - Accounting

Understanding Financial Reports

Assignment Overview

We will continue to review the financial statements we used in the first module to learn additional information. The emphasis of this Case is to review the income statement, balance sheet, and computation of ratios.

Review the financial statements for the companies and answer the following questions for the last reporting year. If no information is available, state that to be the case:

Balance Sheet

• What components of stockholders' equity do each of the companies disclose?
• Do the companies have preferred stock shares outstanding? If so, what special features do these shares contain?
• Do either of the companies report treasury shares? If so, do the companies disclose the reason for reacquiring the shares?

Income Statement

• What are the basic and diluted earnings per share for each company?
• Have the companies reported any discontinued operations?
• Do the companies disclose any stock compensation plans? If so, are they reporting such plans under the fair value or intrinsic value methods? What was the value of compensation expense measured for any outstanding stock option plans?

Financial Ratios

Compute the following ratios. Also, interpret and assess each group of ratios for the company. What type of story are the ratios telling the analyst?

• Profitability ratios:
• Gross profit margin
• Net profit margin
• Return on stockholders' equity
• Liquidity ratios:
• Current ratio
• Quick ratio
• Inventory turnover
• Leverage ratios:
• Debt-to-assets
• Debt-to-equity
• Times-covered ratio

What type of information do you find in footnotes to the financial statements?

Do you find the balance sheet, income statement or other measures such as ratios the most informative? Comment on the advantages and disadvantages of using ratios for analysis.

Assignment Expectations

It is important to answer the questions as posed. The discussion should be 4 to 6 pages and written in a clear and concise manner. Support your discussion with references in APA format. You are encouraged to use Excel or other compatible spreadsheet when computations are involved.

-----Here is the balace Sheet from tyhe previous task without the ajustments indicated on the botton-------

Costa Company
31-Dec-14
Trial Balance (accounts in alphabetical order)

Accounts

Working Trial Balance

Balance Sheet

Income Statement

Debit

Credit

Debit

Credit

Debit

Credit

Accounts payable

\$14,500

\$14,500

Accounts receivable

\$18,000

\$18,000

Cash

41,500

41,500

Common stock

10,000

10,000

Depreciation expense

18,250

18,250

Cost of goods sold

402,610

402,610

Equipment (net of depreciation)

325,000

325,000

Insurance

1,500

1,500

Inventory

80,500

80,500

Long-term debt

105,000

105,000

Marketing

5,600

5,600

Misc. expenses

4,500

4,500

Paid-in capital

90,000

90,000

Property taxes

6,500

6,500

Rent

22,000

22,000

Retained earnings

156,400

245,500

Revenues

619,400

619,400

Salaries

61,940

61,940

Utilities

7,400

7,400

Total

\$995,300

\$995,300

\$465,000

\$465,000

\$530,300

\$619,400

Required:

Your task is to prepare an income statement and a balance sheet in good format after adjusting for the two errors below.

• A physical count of inventory indicates \$84,200 on hand.
• There’s a check for \$15,000 from a customer that has not been recorded in the working trial balance. The sale was never recorded in the first place, so the transaction relating to this sale is missing.

 Subject Business Due By (Pacific Time) 09/09/2014 12:00 am
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