Posted: April 10th, 2016

Would you feel comfortable making a loan based on the ratio you computed in?

Reduction of lease obligating (principal portion of lease payment)
Interest expense
Increase in deferred taxes

PROBLEM 10-9: Partial Classified Balance Sheet for Walgreens

The following items, listed alphabetically, appear on Walgreen’s consolidated balance sheet at August 31, 2010 (in millions).

Accrued expenses and other liabilities 2,763
Deferred income tax (long-term) 318
Long-term debt 2,389
Other noncurrent liabilities 1735
Short-term borrowing 12
Trade accounts payable 4585
Income Taxes 73

1. Prepare the Current Liabilities and Long-Term Liabilities sections of Walgreens’s classified balance sheet at August 31, 2010.

2. Walgreens had total liabilities of $10,766 and total shareholders’ equity of $14,376 at August 31, 2009. Total shareholders’ equity at August 31, 2010, amounted to $14,400. (All amounts are in millions.) Compute Walgreens’s debt-to-equity ratio at August 31, 2010 and 2009.

As an investor, how would you react to the changes in the ratio?

3. What other related ratios would the company’s lenders use to assess the company? What do these ratios measure? List as many as you determine needed.

PROBLEM 11-7: Wal-mart’s Comprehensive Income

Following is the consolidated statement of shareholders’ equity of Wal-Mart Stores, Inc., for the year ended January 31, 2010:
1. Which items were included in comprehensive income? If these items had been included on the income statement as part of net income, what would have been the effect?

2. Would the concept of comprehensive income help to explain to Wal-Mart’s stockholders the impact of all events that took place in 2010? Why or why not?

Peeler Company was incorporated as a new business on January 1, 2012. The corporate charter approved on that date authorized the issuance of 1,000 shares of $100 par, 7% cumulative, non-participating preferred stock and 10,000 shares of $5 par common stock. On January 10, Peeler issued for cash 500 shares of preferred stock at $120 per share and 4,000 shares of common stock at $80 per share. On January 20, it issued 1,000 shares of common stock to acquire a building site at a time when the stock was selling for $70 per share.

During 2012, Peeler established an employee benefit plan and acquired 500 shares of common stock at $60 per share as treasury stock for that purpose. Later in 2012, it resold 100 shares of the stock at $65 per share.

On December 31, 2012, Peeler determined its net income for the year to be $40,000. The firm declared the annual cash dividend to preferred stockholders and a cash dividend of $5 per share to the common stockholders. The dividends will be paid in 2013.

Indicate how each transaction affects the cash flow of Peeler Company by preparing the Financing Activities section of the 2012 statement of cash flows. Provide an explanation for the exclusion of any of these transactions from the Financing Activities section of the statement.

Cash flows from financing activities:
Transaction # Stock x Cost

The following transactions would not appear in the Financing Activities section of the statement of cash flows:

XERCISE 12-19: Cash Flow Adequacy

On its most recent statement of cash flows, a company reported net cash provided by operating activities of $12 million. Its capital expenditures for the same year were $2 million. A note to the financial statements indicated that the total amount of debt that would mature over the next five years was $20 million.

1. Compute the company’s cash flow adequacy ratio.
2. If you were a banker considering loaning money to this company, why would you be interested in knowing its cash flow adequacy ratio? Would you feel comfortable making a loan based on the ratio you computed in (1)? Explain your answer.

EXERCISE 12-20: Classification of Activities

Use the following legend to indicate how each transaction would be reported on the statement of cash flows. (Assume that the stocks and bonds of other companies are classified as long-term investments.)
II = Inflow from investing activities
OI = Outflow from investing activities
IF = Inflow from financing activities
OF = Outflow from financing activities
CE = Classified as a cash equivalent and included with cash for purposes of preparing the statement of cash flow

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