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Case is due on the class 11 (the week before the final exam).

Names: Dan Wang and Rui (Rachel) Dong


a. Describe in no more than three lines Googles business.
Google Inc. is an American multinational technology company specializing in Internet-related services
and products. These include search, cloud computing, online advertising technologies, and
software. Most of its profits are derived from AdWords, an online advertising service that places
advertising near the list of search results.
b. Provide the Accounting Equation for Google, as of December 31, 2011.
Total assets = Total liabilities + Total stockholders equity
72,574 = 14,429 + 58,145 (numbers in millions)
c. Calculate the ratio of Current Assets to Current Liabilities on December 31, 2010 and 2011, as well
as the change in this ratio.
12/31/2010: current ratio = 41,562/9,996 = 4.16
12/31/2011: current ratio = 52,758/8,913 = 5.92
Current ratio increased by 1.76 which may suggest improved liquidity
d. Compare the percentage change in Net Income between 2010 and 2011 to that in Basic Earnings
Per Share. In one line, what is the most likely explanation for the difference?
2011 vs. 2010:
Net income change % = 9,737/8,505 1 = 14.5%
Basic EPS change % = 30.17/26.69 1 = 13%
The lower EPS change % is due to the common shares outstanding (denominator) increased by 1.3%
e. Calculate the ratio of Net Income to Owners Equity on December 31, 2010 and 2011. Did the ratio
increase or decrease? By how much?
12/31/2010: ROE = 8,505/46,241 = 18.4%
12/31/2011: current ratio = 9,737/58,145 = 16.7%
The ROE ratio decreased by 1.7%

f. Who will be the next US president?


Democratic Party nomination has three candidates. Hillary Clinton feels like a very strong favorite to
win the Democratic Party nomination -- possibly the strongest non-incumbent frontrunner in decades.
However, it doesn't mean she'll win the general election. In our opinion, it is mainly because of two
reasons. Firstly, she didnt archive a lot of success when she was secretary of state. Her policy and
strategy was not widely accepted by public. People seems disappointed with democrats. Secondly, all
over the world is suffering from terrorism now eg. tragedy at Paris. People may tend to select
Republican which has a stronger position and policy on national safety.
Republican Party nomination has 14 candidates. We have no idea who will win the nomination.
However, We think Jim Gilmore, John Kasich, Chris Christie, Donald Trump, Lindsey Graham,
Carly Fiorina, George Pataki, Rick Santorum, Ben Carson have small chance to win.
Jeb bush: After turning out to be a lackluster candidate and delivering bad performances in debates,
the conventional wisdom that Bush would eventually rise to the top has evaporated. His fundraising
has slowed, his organizing is weak, his poll numbers have tanked, and his campaign is laying off
staffers. Many reporters and pundits think his time is nearly up, though Bush insists hes going to
solider through and win.
Ted Cruz: The case for a Cruz nomination hinges on Donald Trump and Ben Carson collapsing and
their support shifting to him. Hes also extremely well-funded, and hes well acquainted with running
and willing as an underdog (as his performance in the race for Senate showed). His campaign
imagines the race coming down to him and Marco Rubio.
Rand Paul: may get support from libertarians. But he is lack of fund raiser.
Marco Rubio: Rubio has been strong at debates, particularly the third one, and hes benefitting from
(and driving) the collapse of the Jeb Bush campaign. As of early November, most people who think
Trump or Carson cant win are placing their bets on Rubio.

g. What are the two most significant reasons for the change in Owners Equity during 2011?

Common shares outstanding increased by $2,029 million likely due to new shares issuance to
finance acquisitions and reward employees.
Retained earnings increased by $9,737 million which is exactly the net income of 2011

h. Out of the years Google provides information for, in which was the dollar difference between Cash
Provided by Operating Activities and Net Income the largest?
2009: Net income CFOA = 6,520 9,316 = (2,796)
2010: Net income CFOA = 8,505 11,081 = (2,576)
2011: Net income CFOA = 9,737 14,565 = (4,828)
The largest difference came in year 2011.
i. On what day did Google close its books for 2011? When did its auditor sign on the audit report?
Googles financial statement ended at December 31st, 2011. However, in real world, most companies
might need another 3 to 7 days after year end to book adjusting entries and close the book for fiscal
2011. The auditor signed on Jan 26th, 2012.
j. Does Google use estimates in its preparation of financial statements? When does it evaluate the
estimates (if exist)? What is the base for the estimates (if exist)?
Yes, Google makes estimates in preparing the financial statements under US GAAP. Google
evaluates these estimates on an ongoing basis. Google bases the estimates on past experience and
other assumptions that are believed to be reasonable under the circumstances.
Googles accounting estimates include but not limited to: income tax position, loss contingencies,
stock-based compensation expense for stock options, various impairments, revenue recognition, bad
debt expense for accounts receivable, useful life of fixed assets and intangible assets, etc.

k. How does Google decide how much to charge its AdWords customers? How does it recognize the
related Revenues?
Most of the AdWords customers pay Google on a cost-per-click basis, which means that an advertiser
pays Google only when a user clicks on one of its ads. Google also offers AdWords on a cost-perimpression basis that enables advertisers to pay Google based on the number of times their ads
appear on Googles websites and Google Network Members websites as specified by the advertiser.
For cost-per-click pricing, Google recognizes as revenue the fees charged to advertisers each time a
user clicks on one of the ads that appears next to the search results or content on Googles websites
or Google Network Members websites. For cost-per-impression pricing, Google recognizes as
revenue the fees charged to advertisers each time their ads are displayed on Google websites or
Google Network Members websites.
l. What kind of liquid investments are classified as Cash Equivalents?
Cash equivalents and marketable securities are comprised of time deposits, money market and other
funds, including cash collateral received related to our securities lending program, highly liquid debt
instruments of the U.S. government and its agencies, debt instruments issued by foreign
governments, and municipalities in the U.S., corporate securities, and mortgage-backed securities.
m. What kind of transaction gives rise to the recording of Goodwill? How much Goodwill did Google
acquire during 2011?
Goodwill arises when there is an acquisition transaction with the consideration larger than the fair
value of the identifiable net assets of the entity to be acquired. Google acquired $1,118 million of
goodwill during 2011.
n. What is the weighted average useful life of Patents as reported by Google?
Patents and developed technology have a weighted-average useful life of 6.3 years
o. For the years that information is available, in which year net Accounts Receivable Write-Offs were
the highest? What percentage of that years ending balance of total Receivables is this amount? Do
you have enough information to answer this question?
Year 2011: 182.
182/5427=3.4%
yes

p. Arrange the following cities from East to West: Beijing, Tel-Aviv, New Delhi, New York
According to International Date Line, from East to West: Beijing, New Delhi, Tel-Aviv, New York
q. A Judgment Question. After reading the Google 2011 Annual Report, do you observe any
irregularity or a reason to be concerned regarding its financial reporting policies? (Only a short answer
is required here - up to 10 lines.)
The largest difference between cash flow from operating activities and net income in year 2011 may
indicate a poor earnings quality, likely due to a lot more accrual items in financial statement. Accrual
items are always resulted from accounting estimates which are subject to management discretion.
The significant operating lease obligations and purchase obligations require that the company
maintain a rigorous tracking mechanism and schedule on those future commitments and may pose a
liquidity risk in the following years.