ACC 327 Amazon Project PDF

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Professor Reginald Wilson Intermediate Accounting II

#1 Year Ended December 31st, 2011: (in millions)

Beginning Balance Net Sales Actual Cash Collected Ending Balance

Accounts Receivable $1,587 $48,077 $47,093 $2,571

1A) According to Amazon’s financial statements, during the year of 2011 there were more credit sales than cash collections of the credit sales. Accounts Payable Beginning Balance Inventory Purchase Ending Balance

$8,051 $3,094 $11,145

1B) According to Amazon’s financial statements, during the year of 2011 there were more purchases than cash payments due to the change in Inventory is less than the change in Accounts Payable. #2 2A) Yes, Amazon does account for the possibility that customers and vendors may not fully pay for previous purchases on credit. Amazon has an Allowance of Doubtful Accounts that has an $82 million balance at the end of 2011, which shows how they account for these vendors and customers. 2B) The difference between the number reported on the balance and the ending balance is the amount in the allowance for bad debt account. The Accounts Receivable listed on the balance sheet as “net and other”, so they have not accounted for the possibility of bad debt. 2C) The Accounts Receivable for the beginning of 2011 is $1,510. Amazon then received $1,600 in cash payments. This shows that they underestimated how much they would actually receive from customers for previous purchases on account.

#3 3A) The method of depreciation that Amazon.com uses is the straight-line method over the estimated useful lives of the assets. The Depreciation expense is classified within the operating expenses on Amazons consolidated statements of operations. 3B) In millions: Depreciation Expense- Technology and Infrastructure Beginning Balance $1,734 Depreciation Expense $392 Technology Purchase $1,567 Ending Balance

$2,909

The other transaction that must have occurred in 2011 is Amazon increased the Technology Expense by $1,567, which would be a purchase. #4 4A) It’s necessary to disclose this information in the footnotes because it shows potential liabilities. 4B) According to the notes, depending on the amount and timing of these lawsuits against Amazon, the resolution could likely be ruled as unfavorable towards the business because the actual amount of risk is undetermined. The liabilities are possible, but not probable. 4C) If this scenario occurred, it would affect Amazon tremendously. Amazon must record $27.22 million of this $600 million liability. The liquidity of Amazon would decrease because the lawsuit would cause an increase in both the current and longterm liabilities. The expense that is recorded with this liability would be “Other Operating Expense”. #5 5A) On Amazons balance sheet, the short-term investments are included in the “Cash and Cash Equivalents” or the “Marketable Securities” section. Equity-method investments are included in the “Other Assets” section of Amazons consolidated balance sheet.

5B) In millions:

Marketable Securities $4,985

Beginning Balance Sale of Securities Purchase Sale of Securities

$1,000 $1,218 $896

Ending Balance

$4,307

An adjustment to decrease Marketable Securities by $896 is necessary to make the $4,307 ending balance. #6 A) The amount of the preferred stock dividend would be $700 million ($700 * 100 Million shares). Amazon would list this issuance under financing activities on the Statement of Cash Flows. B) The issuance of this preferred stock would reduce liquidity. The Liquidity before the dividend is .815, and the Liquidity after the dividend is .809. #7 Current Ratio

COGS Ratio

Asset Turnover Ratio

Return on Investment Ratio

Debt Ratio

Cash Flows From Operations Ratio

Net P, P & E Ratio

Times Interest Earned Ratio

Amazon Ratio

1.174

0.755

1.902

0.025

0.693

0.081

0.175

13.338

Mean Median

1.835

0.689

2.231

-0.007

0.582

0.037

0.203

-1.703

1.544

0.691

2.013

0.033

0.572

0.052

0.175

7.283

The mean and medians that differ significantly was just the times interest earned ratio and the ROI ratio with the median being significantly larger then the mean. This could be due to negative numbers located throughout the different companies accounts, which is causing discrepancies. The times interest earned ratio differs the most. Amazons ratios are decently similar to the mean and the median values. Using these ratios could help benefit the company by referring to them to see what the business could improve in. Any negative ratios are bad for the business; good news is Amazon had no negative ratios. The best ratio Amazon had was the Times Interest earned Ratio and the worst was the return on investment ratio. This shows that

Amazon needs to improve in these areas. Using these ratios helps business’ see what they need to improve in, and Amazon can definitely use these to benefit their firm....