Garcia Co. had three major business transactions during 2014.

(c) Garcia Co. wanted to make its 2014 income look better, so it added 2 more weeks to the year (a 54-week year). Previous years were 52 weeks.

Instructions

In each situation, identify the assumption or principle that has been violated, if any, and discuss what the company should have done.

What is the primary objective of financial reporting?

Auditors provide a type of certification of corporate financial statements. Certification is used in many other aspects of business as well. For example, it plays a critical role in the sustainability movement. The February 7, 2012, issue of the New York Times contained an article by S. Amanda Caudill entitled “Better Lives in Better Coffee,” which discusses the role of certification in the coffee business.

Address: http://scientistatwork.blogs.nytimes.com/2012/02/07/better-lives-in-better-coffee/

Instructions

Read the article and answer the following questions.

(c) What social and environmental benefits are coffee certifications trying to achieve? Are there also potential financial benefits to the parties involved?

Auditors provide a type of certification of corporate financial statements. Certification is used in many other aspects of business as well. For example, it plays a critical role in the sustainability movement. The February 7, 2012, issue of the New York Times contained an article by S. Amanda Caudill entitled “Better Lives in Better Coffee,” which discusses the role of certification in the coffee business.

Address: http://scientistatwork.blogs.nytimes.com/2012/02/07/better-lives-in-better-coffee/

Instructions

Read the article and answer the following questions.

(b) According to the author, which certification is most common among coffee growers? What are the possible reasons for this?

What body provides authoritative support for GAAP?

What are generally accepted accounting principles (GAAP)?

Auditors provide a type of certification of corporate financial statements. Certification is used in many other aspects of business as well. For example, it plays a critical role in the sustainability movement. The February 7, 2012, issue of the New York Times contained an article by S. Amanda Caudill entitled “Better Lives in Better Coffee,” which discusses the role of certification in the coffee business.

Address: http://scientistatwork.blogs.nytimes.com/2012/02/07/better-lives-in-better-coffee/

Instructions

Read the article and answer the following questions.

(a) The article mentions three different certification types that coffee growers can obtain from three different certification bodies. Using financial reporting as an example, what potential problems might the existence of multiple certification types present to coffee purchasers?

Presented below are the assumptions and principles discussed in this chapter.

1. Full disclosure principle.
2. Going concern assumption.
3. Monetary unit assumption.
4. Periodicity assumption.
5. Historical cost principle.
6. Economic entity assumption

Instructions

Identify by number the accounting assumption or principle that is described below. Do not use a number more than once.

______ (a) Is the rationale for why plant assets are not reported at liquidation value. (Note: Do not use the historical cost principle.)
______ (b) Indicates that personal and business record-keeping should be separately maintained.
______ (c) Assumes that the dollar is the “measuring stick” used to report on financial performance.
______ (d) Separates financial information into time periods for reporting purposes.
______ (e) Measurement basis used when a reliable estimate of fair value is not available.
______ (f) Dictates that companies should disclose all circumstances and events that make a difference to financial statement users.

Suppose the following data were taken from the 2014 and 2013 financial statements of American Eagle Outfitters. (All numbers, including share data, are in thousands.)

$$\begin{array}{lcc} &\underline{\textbf{2014}}&\underline{\textbf{2013}}\\[3pt] \text{Current assets}&\text{\$\hspace{8pt}925,359}&\text{\$\hspace{1pt}1,020,834}\\ \text{Total assets}&\text{\hspace{5pt}1,963,676}&\text{\hspace{6pt}1,867,680}\\ \text{Current liabilities}&\text{\hspace{14pt}401,763}&\text{\hspace{13pt}376,178}\\ \text{Total liabilities}&\text{\hspace{14pt}554,645}&\text{\hspace{14pt}527,216}\\ \text{Net income}&\text{\hspace{14pt}179,061}&\text{\hspace{14pt}400,019}\\ \text{Net cash provided by operating activities}&\text{\hspace{14pt}302,193}&\text{\hspace{14pt}464,270}\\ \text{Capital expenditures}&\text{\hspace{14pt}265,335}&\text{\hspace{14pt}250,407}\\ \text{Dividends paid on common stock}&\text{\hspace{19pt}82,394}&\text{\hspace{19pt}80,796}\\ \text{Weighted-average shares outstanding}&\text{\hspace{14pt}205,169}&\text{\hspace{14pt}216,119}\\ \end{array}$$

Instructions

Perform each of the following.

(f) Discuss American Eagle’s ability to finance its investment activities with net cash provided by operating activities, and how any deficiency would be met.

Suppose the following data were taken from the 2014 and 2013 financial statements of American Eagle Outfitters. (All numbers, including share data, are in thousands.)

$$\begin{array}{lcc} &\underline{\textbf{2014}}&\underline{\textbf{2013}}\\[3pt] \text{Current assets}&\text{\$\hspace{8pt}925,359}&\text{\$\hspace{1pt}1,020,834}\\ \text{Total assets}&\text{\hspace{5pt}1,963,676}&\text{\hspace{6pt}1,867,680}\\ \text{Current liabilities}&\text{\hspace{14pt}401,763}&\text{\hspace{13pt}376,178}\\ \text{Total liabilities}&\text{\hspace{14pt}554,645}&\text{\hspace{14pt}527,216}\\ \text{Net income}&\text{\hspace{14pt}179,061}&\text{\hspace{14pt}400,019}\\ \text{Net cash provided by operating activities}&\text{\hspace{14pt}302,193}&\text{\hspace{14pt}464,270}\\ \text{Capital expenditures}&\text{\hspace{14pt}265,335}&\text{\hspace{14pt}250,407}\\ \text{Dividends paid on common stock}&\text{\hspace{19pt}82,394}&\text{\hspace{19pt}80,796}\\ \text{Weighted-average shares outstanding}&\text{\hspace{14pt}205,169}&\text{\hspace{14pt}216,119}\\ \end{array}$$

Instructions

Perform each of the following.

(e) Discuss American Eagle’s solvency in 2014 versus 2013.

Suppose the following data were taken from the 2014 and 2013 financial statements of American Eagle Outfitters. (All numbers, including share data, are in thousands.)

$$\begin{array}{lcc} &\underline{\textbf{2014}}&\underline{\textbf{2013}}\\[3pt] \text{Current assets}&\text{\$\hspace{8pt}925,359}&\text{\$\hspace{1pt}1,020,834}\\ \text{Total assets}&\text{\hspace{5pt}1,963,676}&\text{\hspace{6pt}1,867,680}\\ \text{Current liabilities}&\text{\hspace{14pt}401,763}&\text{\hspace{13pt}376,178}\\ \text{Total liabilities}&\text{\hspace{14pt}554,645}&\text{\hspace{14pt}527,216}\\ \text{Net income}&\text{\hspace{14pt}179,061}&\text{\hspace{14pt}400,019}\\ \text{Net cash provided by operating activities}&\text{\hspace{14pt}302,193}&\text{\hspace{14pt}464,270}\\ \text{Capital expenditures}&\text{\hspace{14pt}265,335}&\text{\hspace{14pt}250,407}\\ \text{Dividends paid on common stock}&\text{\hspace{19pt}82,394}&\text{\hspace{19pt}80,796}\\ \text{Weighted-average shares outstanding}&\text{\hspace{14pt}205,169}&\text{\hspace{14pt}216,119}\\ \end{array}$$

Instructions

Perform each of the following.

(d) Calculate the free cash flow for each year.

Which ratio or ratios from this chapter do you think should be of greatest interest to:

(c) an investor in common stock?

Suppose the following data were taken from the 2014 and 2013 financial statements of American Eagle Outfitters. (All numbers, including share data, are in thousands.)

$$\begin{array}{lcc} &\underline{\textbf{2014}}&\underline{\textbf{2013}}\\[3pt] \text{Current assets}&\text{\$\hspace{8pt}925,359}&\text{\$\hspace{1pt}1,020,834}\\ \text{Total assets}&\text{\hspace{5pt}1,963,676}&\text{\hspace{6pt}1,867,680}\\ \text{Current liabilities}&\text{\hspace{14pt}401,763}&\text{\hspace{13pt}376,178}\\ \text{Total liabilities}&\text{\hspace{14pt}554,645}&\text{\hspace{14pt}527,216}\\ \text{Net income}&\text{\hspace{14pt}179,061}&\text{\hspace{14pt}400,019}\\ \text{Net cash provided by operating activities}&\text{\hspace{14pt}302,193}&\text{\hspace{14pt}464,270}\\ \text{Capital expenditures}&\text{\hspace{14pt}265,335}&\text{\hspace{14pt}250,407}\\ \text{Dividends paid on common stock}&\text{\hspace{19pt}82,394}&\text{\hspace{19pt}80,796}\\ \text{Weighted-average shares outstanding}&\text{\hspace{14pt}205,169}&\text{\hspace{14pt}216,119}\\ \end{array}$$

Instructions

Perform each of the following.

(c) Calculate the debt to assets ratio for each year.

If your school has a subscription to the FASB Codification, go to http://aaahq.org/ascLogin.cfm to log in and prepare responses to the following.

Instructions

(b) A company wants to offset its accounts payable against its cash account and show a cash amount net of accounts payable on its balance sheet. Identify the criteria (found in the FASB Codification) under which a company has the right of set off. Does the company have the right to offset accounts payable against the cash account?