Expand Your Critical Thinking b.

What was the company’s gross profit rate in 2013, 2014, and
Financial Reporting Problem:
Apple Inc.
CT1.1 The financial statements of Apple Inc. shown in Appendix A.
Instructions
Refer to Apple’s financial statements and answer the following
questions.
a. What were Apple’s total assets at September 26, 2015? At
September 27, 2014?
b. How much cash (and cash equivalents) did Apple have on
September 26, 2015?
c. What amount of accounts payable did Apple report on September
26, 2015? On September 27, 2014?
d. What were Apple’s net sales in 2013? In 2014? In 2015?
e. What is the amount of the change in Apple’s net income from 2014
to 2015?
CT2.1 The financial statements of Apple Inc. shown in Appendix A.
Apple’s financial statements contain the following selected
accounts, stated in millions of dollars.
Accounts Payable Cash and Cash Equivalents
Accounts Receivable R&D Expense
Property, Plant, and Equipment Inventories
Instructions
a. Answer the following questions.
1. What is the increase and decrease side for each account?
2. What is the normal balance for each account?
b. Identify the probable other account in the transaction and the effect
on that account when:
1. Accounts Receivable is decreased.
2. Accounts Payable is decreased.
3. Inventories are increased.
c. Identify the other account(s) that ordinarily would be involved
when:
1. Research and Development Expense is increased.
2. Property, Plant, and Equipment is increased.
CT3.1 The financial statements of Apple Inc. shown in Appendix A.
Instructions
a. Using the consolidated financial statements and related
information, identify items that may result in adjusting entries for
prepayments.
b. Using the consolidated financial statements and related
information, identify items that may result in adjusting entries for
accruals.
c. What has been the trend since 2013 for net income?
CT4.1 The financial statements of Apple Inc. shown in Appendix A.
Instructions
a. What were Apple’s total current assets at September 26, 2015, and
September 27, 2014?
b. Are assets that Apple included under current assets listed in proper
order? Explain.
c. How are Apple’s assets classified?
d. What was Apple’s “Cash and cash equivalents” at September 26,
2015?
e. What were Apple’s total current liabilities at September 26, 2015,
and September 27, 2014?
CT5.1 The financial statements of Apple Inc. shown in Appendix A.
Instructions
a. What was the percentage change in (1) net sales and in (2) net
income from 2013 to 2014 and from 2014 to 2015?
2015?
c. What was the company’s percentage of net income to net sales in
2013, 2014, and 2015? Comment on any trend in this percentage.
CT6.1 Refer to the financial statements of Apple Inc. in Appendix A.
Instructions
Answer the following questions. Complete the requirements in
millions of dollars, as shown in Apple’s annual report.
a. What did Apple report for the amount of inventories in its
consolidated balance sheet at September 27, 2014? At September 26,
2015?
b. Compute the dollar amount of change and the percentage change
in inventories between 2014 and 2015. Compute inventory as a
percentage of current assets at September 26, 2015.
c. How does Apple value its inventories? Which inventory cost flow
method does Apple use? (See Notes to the Financial Statements.)
d. What is the cost of sales (cost of goods sold) reported by Apple for
2015, 2014, and 2013? Compute the percentage of cost of sales to net
sales in 2015.
CT8.1 The financial statements of Apple Inc. shown in Appendix A.
Instructions
a. What comments, if any, are made about cash in the “Report of the
Independent Registered Public Accounting Firm”?
b. What data about cash and cash equivalents are shown in the
consolidated balance sheet?
c. In its notes to Consolidated Financial Statements, how does Apple
define cash equivalents?
d. In “Management’s Annual Report on Internal Control over
Financial Reporting,” what does Apple’s management say about
internal control?
CT10.1 The financial statements of Apple Inc. shown in Appendix A.
Instructions
a. What was the total cost and book value of property, plant, and
equipment at September 26, 2015?
b. What was the amount of depreciation and amortization expense for
each of the three years 2013–2015?
c. Using the statement of cash flows, what is the amount of capital
spending in 2015 and 2014? (Ignore business acquisitions and
intangible assets.)
d. Where does the company disclose its intangible assets, and what
types of intangibles did it have at September 26, 2015?
CT11.1 The financial statements of Apple Inc. shown in Appendix A.
Instructions
Refer to Apple’s financial statements and answer the following
questions about current and contingent liabilities and payroll costs.
a. What were Apple’s total current liabilities at September 26, 2015?
What was the increase/decrease
in Apple’s total current liabilities from the prior year?
b. In Apple’s Note 10, the company explains the nature of its
contingencies. Under what conditions does Apple recognize (record
and report) liabilities for contingencies?
c. What were the components of total current liabilities on September
26, 2015?
CT13.1 The stockholders’ equity section for Apple Inc. is shown in
Appendix A.
Instructions
a. What is the par or stated value per share of Apple’s common
stock?
b. What percentage of Apple’s authorized common stock was issued
at September 26, 2015?
CT14.1 The financial statements of Apple Inc. shown in Appendix A. a. Based on the information contained in these financial statements,
Instructions determine the following for each company.
Refer to Apple’s financial statements and answer the following 1. Total assets at December 26, 2015, for PepsiCo and for Coca-Cola
question. What amount, if any, did Apple declare in dividends on at December 31, 2015.
common stock in the year ended September 26, 2015? 2. Accounts (notes) receivable, net at December 26, 2015, for
PepsiCo and at December 31, 2015, for Coca-Cola.
3. Net revenues for year ended in 2015.
CT15.1 The financial statements of Apple Inc. shown in Appendix A.
4. Net income for year ended in 2015.
Instructions b. What conclusions concerning the two companies can be drawn
a. What were Apple’s total long-term liabilities at September 26, from these data?
2015? What was the increase/ decrease in total long-term liabilities
from the prior year? CT2.2
b. Determine whether Apple redeemed (bought back) any long-term Instructions
liabilities during the fiscal year ended September 26, 2015.
a. Based on the information contained in the financial statements,
determine the normal balance of the listed accounts for each
CT16.1 The annual report of Apple Inc. is presented in Appendix A.
company.
Instructions
PepsiCo Coca-Cola
a. Determine the percentage increase for
1. Inventory 1. Accounts Receivable
(1) short-term marketable securities from 2014 to 2015, and
(2) long-term marketable securities from 2014 to 2015. 2. Property, Plant, and Equipment 2. Cash and Cash Equivalents
b. Using Apple’s consolidated statement of cash flows, determine: 3. Accounts Payable 3. Cost of Goods Sold (exp.)
1. Purchases of marketable securities during the current 4. Interest Expense 4. Sales (revenue)
year.
2. How much was spent for business acquisitions, net of b. Identify the other account ordinarily involved when:
cash acquired during the current year. 1. Accounts Receivable is increased.
2. Salaries and Wages Payable is decreased.
CT17.1 The financial statements of Apple Inc. shown in Appendix A. 3. Property, Plant, and Equipment is increased.
Instructions 4. Interest Expense is increased.
a. What was the amount of net cash provided by operating activities
for the year ended September 26,
2015? For the year ended September 27, 2014? CT3.2
b. What was the amount of increase or decrease in cash and cash Instructions
equivalents for the year ended September 26, 2015? For the year Based on information contained in these financial statements,
ended September 27, 2014? determine the following for each company.
c. Which method of computing net cash provided by operating a. Net increase (decrease) in property, plant, and equipment (net)
activities does Apple use? from 2014 to 2015.
d. From your analysis of the 2015 statement of cash flows, did the b. Increase (decrease) in selling, general, and administrative expenses
change in accounts receivable increase or decrease cash? Did the from 2014 to 2015.
change in inventories increase or decrease cash? Did the change in c. Increase (decrease) in long-term debt (obligations) from 2014 to
accounts payable increase or decrease cash? 2015.
d. Increase (decrease) in net income from 2014 to 2015.
CT18.1 Your parents are considering investing in Apple Inc. e. Increase (decrease) in cash and cash equivalents from 2014 to
common stock. They ask you, as an accounting expert, to make an 2015.
analysis of the company for them. Apple’s financial statements are
presented in Appendix A.
CT4.2
Instructions
Instructions
(Follow the approach in the chapter for rounding numbers.)
a. Make a 3-year trend analysis, using 2013 as the base year, of (1) a. Based on the information contained in these financial statements,
net sales and (2) net income. Comment on the significance of the determine each of the following
trend results. for PepsiCo at December 26, 2015, and for Coca-Cola at December
b. Compute for 2015 and 2014 the (1) profit margin, (2) asset turnover, 31, 2015.
(3) return on assets, and (4) return on common stockholders’ equity. How 1. Total current assets.
would you evaluate Apple’s profitability? Total assets at September 28, 2. Net amount of property, plant, and equipment
2013, were $207,000 and total stockholders’ equity at September 28, 3. Total current liabilities.
2013, was $123,549. 4. Total equity.
c. Compute for 2015 and 2014 the (1) debt to assets ratio and (2) b. What conclusions concerning the companies’ respective financial
times interest earned. How would you evaluate Apple’s long-term positions can be drawn?
solvency?
d. What information outside the annual report may also be useful to CT5.2
your parents in making a decision about Apple? Instructions
a. Based on the information contained in these financial statements,
Comparative Analysis Problem: determine each of the following
for each company.
PepsiCo, Inc. vs. The Coca-Cola Company 1. Gross profit for 2015.
2. Gross profit rate for 2015.
CT1.2 PepsiCo, Inc.’s financial statements shown in Appendix B. 3. Operating income for 2015.
and The Coca-Cola Company shown in Appendix C. 4. Percentage change in operating income from 2014: 2015.
Instructions b. What conclusions concerning the relative profitability of the two
companies can you draw from these data?
CT6.2
Instructions
a. Based on the information contained in these financial statements,
compute the following 2015 ratios
for each company.
1. Inventory turnover.
2. Days in inventory.
b. What conclusions concerning the management of the inventory can
you draw from these data?
CT8.2
Instructions
a. Based on the information contained in these financial statements,
determine each of the following for each company:
1. Cash and cash equivalents balance at December 26, 2015, for
PepsiCo and at December 31, 2015, for Coca-Cola.
2. Increase (decrease) in cash and cash equivalents from 2014 to
2015.
3. Cash provided by operating activities during the year ended
December 2015 (from statement of cash flows).
b. What conclusions concerning the management of cash can be
drawn from these data?
CT9.2
Instructions
a. Based on the information in these financial statements, compute
the following 2015 ratios for each company. (Assume all sales are
credit sales and that PepsiCo’s receivables on its balance sheet are all
trade receivables.)
1. Accounts receivable turnover.
2. Average collection period for receivables.
b. What conclusions about managing accounts receivable can you
draw from these data?
CT10.2
Instructions
a. Compute the asset turnover for each company for 2015.
b. What conclusions concerning the efficiency of assets can be drawn
from these data?
CT11.2
Instructions
a. At December 26, 2015, what was PepsiCo’s largest current
liability account? What were its total current liabilities? At December
31, 2015, what was Coca-Cola’s largest current liability account?
What were its total current liabilities?
b. Based on information contained in those financial statements,
compute the following 2015 values for each company:
1. Working capital.
2. Current ratio.
c. What conclusions concerning the relative liquidity of these
companies can be drawn from these data?
CT13.2
Instructions
a. What percentage of authorized shares was issued by Coca-Cola at
December 31, 2015, and by PepsiCo at December 26, 2015?
b. How many shares are held as treasury stock by Coca-Cola at
December 31, 2015, and by PepsiCo at December 26, 2015?
c. How many Coca-Cola common shares are outstanding at
December 31, 2015? How many PepsiCo shares of common stock are
outstanding at December 26, 2015?
CT14.2
Instructions
a. Compute earnings per share and return on common stockholders’
equity for both companies for 2015. Assume PepsiCo’s weighted-
average shares were 1,469 million and Coca-Cola’s weighted average
shares were 4,352 million. Can these measures be used to compare
the profitability of the two companies? Why or why not?
b. What was the total amount of dividends paid by each company in
2015?
CT15.2
Instructions
a. Based on the information contained in these financial statements,
compute the following 2015 ratios for each company.
1. Debt to assets.
2. Times interest earned.
b. What conclusions concerning the companies’ long-run solvency
can be drawn from these ratios?
CT16.2
Instructions
Based on the information contained in these financial statements,
determine the net cash used in investing (investment) activities for
the current year (from the statement of cash flows) for each company.
CT17.2
Instructions
a. Based on the information contained in these financial statements,
compute free cash flow for each company.
b. What conclusions concerning the management of cash can be
drawn from these data?
CT18.2
Instructions
a. Based on the information contained in these financial statements,
determine each of the following for each company.
1. The percentage increase (decrease) in (i) net sales and (ii) net
income from 2014 to 2015.
2. The percentage increase in (i) total assets and (ii) total common
stockholders’ (shareholders’) equity from 2014 to 2015.
3. The basic earnings per share and price-earnings ratio for 2015.
(For both PepsiCo and Coca-Cola, use the basic earnings per share.)
Coca-Cola’s common stock had a market price of $42.63 at the
end of fiscal-year 2015, and PepsiCo’s common stock had a market
price of $103.41.
b. What conclusions concerning the two companies can be drawn
from these data?
Comparative Analysis Problem:
Amazon.com, Inc. vs. Wal-Mart Stores, Inc.
CT1.3 Amazon.com, Inc.’s financial statements shown in Appendix
D. Wal-Mart Stores, Inc. shown in Appendix E.
Instructions
a. Based on the information contained in these financial statements,
determine the following for each
company.
1. Total assets at December 31, 2015, for Amazon and for Wal-Mart
at January 31, 2016.
2. Receivables (net) at December 31, 2015, for Amazon and for Wal-
Mart at January 31, 2016.
3. Net sales (product only) for year ended in 2015 (2016 for Wal
Mart).
4. Net income for the year ended in 2015 (2016 for Wal-Mart).
b. What conclusions concerning these two companies can be drawn
from these data?
CT2.3 1. Cash and cash equivalents balance at December 31, 2015, for
Instructions Amazon and at January 31, 2016, for Wal-Mart.
a. Based on the information contained in the financial statements, 2. Increase (decrease) in cash and cash equivalents from 2014: 2015.
determine the normal balance of the 3. Net cash provided by operating activities during the year ended
listed accounts for each company. December 31, 2015, for Amazon and January 31, 2016, for Wal-Mart
Amazon Wal-Mart from statement of cash flows.
1. Interest Expense 1. Net Product Revenues b. What conclusions concerning the management of cash can be
2. Cash and Cash Equivalents 2. Inventories drawn from these data?
3. Accounts Payable 3. Cost of Sales
CT9.3
b. Identify the other account ordinarily involved when:
Instructions
1. Accounts Receivable is increased.
a. Based on the information in these financial statements, compute
2. Interest Expense is increased.
3. Salaries and Wages Payable is decreased. the following ratios for each company (for the most recent year
shown). (Assume all sales are credit sales.)
4. Service Revenue is increased.
1. Accounts receivable turnover.
CT3.3 2. Average collection period for receivables.
b. What conclusions about managing accounts receivable can you
Instructions draw from these data?
Based on information contained in these financial statements,
determine the following for each company. CT10.3
1. a. Increase (decrease) in interest expense from 2014 to 2015. Instructions
b. Increase (decrease) in net income from 2014 to 2015. a. Compute the asset turnover for each company using the financial
c. Increase (decrease) in cash flow from operations from 2014 to statements in Appendices D and E.
2015. b. What conclusions concerning the efficiency of assets can be drawn
2. Cash flow from operations and net income for each company is from these data?
different. What are some possible reasons for these differences?
CT11.3
CT4.3 Instructions
Instructions a. At December 31, 2015, what was Amazon’s largest current
liability account? What were its total current liabilities? At January
a. Based on the information contained in these financial statements,
determine the following for 31, 2016, what was Wal-Mart’s largest current liability account?
Amazon at December 31, 2015, and Wal-Mart at January 31, 2016. What were its total current liabilities?
1. Total current assets. b. Based on information in these financial statements, compute the
following 2015 values for Amazon and 2016 values for Wal-Mart:
2. Net amount of property and equipment, net.
3. Total current liabilities. 1. Working capital.
4. Total equity. 2. Current ratio.
b. What conclusions concerning these two companies can be drawn c. What conclusions concerning the relative liquidity of these
companies can be drawn from these data?
from these data?

CT5.3 CT13.3
(Use Wal-Mart’s January 31, 2016, financial statements for Wal-Mart has 11,000 million shares authorized.
comparative purposes.) Instructions
a. What percentage of authorized shares was issued by Amazon at
Instructions
December 31, 2015, and by Wal-Mart at January 31, 2016?
a. Based on the information contained in these financial statements,
b. How many shares are held as treasury stock by Amazon at
determine each of the following for each company. Use Amazon’s
December 31, 2015, and by Wal-Mart at January 31, 2016?
net product sales to compute gross profit information.
c. How many Amazon common shares are outstanding at December
1. Gross profit for 2015.
31, 2015? How many Wal-Mart shares of common stock are
2. Gross profit rate for 2015.
outstanding at January 31, 2016?
3. Operating income for 2015.
4. Percentage change in operating income from 2014 to
CT14.3
2015.
b. What conclusions concerning the relative profitability of the two
Instructions
companies can you draw from these data? a. What are the basic earnings per share for both Amazon and Wal-
Mart as of December 31, 2015, and January 31, 2016, respectively?
CT6.3 b. What was the total amount of dividends, if any, paid by Amazon
for the year ending December 31, 2015? What was the total dividends
Instructions
paid by Wal-Mart for the year ending January 31, 2016?
a. Based on the information contained in these financial statements,
compute the following 2015 ratios for each company.
1. Inventory turnover.
CT15.3
2. Days in inventory.
b. What conclusions concerning the management of the inventory can
Instructions
you draw from these data? a. Based on the information contained in these financial statements,
compute the following 2015 ratios for Amazon and 2016 ratios for
CT8.3 Wal-Mart.
1. Debt to assets.
Instructions
2. Times interest earned.
a. Based on the information contained in these financial statements,
b. What conclusions concerning the companies’ long-run solvency
determine each of the following for each company:
can be drawn from these ratios?
CT16.3
Instructions
Based on the information contained in these financial statements,
determine the net cash used in investing activities for each company.
e. What was the net outflow or inflow of cash from investing
activities for the year ended September 26, 2015?
f. What was the amount of income taxes paid in the year ended
September 26, 2015?

CT17.3
Instructions
a. Based on the information contained in these financial statements,
compute free cash flow for each company.
b. What conclusions concerning the management of cash can be
drawn from these data?

CT18.3
Instructions
a. Based on the information contained in these financial statements,
determine each of the following for each company.
1. The percentage increase (decrease) in (i) net sales and (ii) net
income from 2014 to 2015.
2. The percentage increase in (i) total assets and (ii) total common
stockholders’ (shareholders’) equity from 2014 to 2015.
3. The basic earnings per share and price-earnings ratio for 2015.
(For both Amazon and Wal-Mart, use the basic earnings per share.)
Amazon’s common stock had a market price of $398.79 at the end of
fiscal-year 2015, and Wal-Mart’s common stock had a market price
of $74.68.
b. What conclusions concerning the two companies can be drawn
from these data?