Corporate Financial Accounting
14th Edition
ISBN: 9781305653535
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 11, Problem 11.1ADM
Continuing Company Analysis–Amazon: Times interest earned
Amazon.com, Inc. is one of the largest Internet retailers in the world. Walmart Stores, Inc. is the largest retailer in the United States. Amazon and Walmart compete in similar markets; however, Walmart sells through both traditional retail stores and the Internet, while Amazon sells only through the Internet. Interest expense and income before income tax expense from the financial statements of both companies for two recent years follow (in millions):
| Amazon | Walmart | ||||||
| Year 2 | Year 1 | Year 2 | Year 1 | ||||
| Interest expense | $ 210 | $141 | $ 2/461 | $ 2,335 | |||
| Income (loss) before income tax expense | (111) | 274 | 24,799 | 24,656 | |||
A. Compute the times interest earned ratio for both companies for the two years. (Round to one decimal place.)
B. Interpret Amazon’s interest coverage from Year 1 to Year 2.
C. Does a times interest earned ratio less than 1.0 mean that creditors will not get paid interest?
D. Interpret Walmart’s interest coverage from Year 1 to Year 2.
E. Which company appears to have the greater protection for creditors?
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Analyze and compare Clorox and Procter & Gamble
The Clorox Company (CLX) and The Procter & Gamble Company (PG) produce and sell packaged consumer products around the world. Income and interest expense information from financial statements for a recent year follows (in millions):
Clorox
Procter & Gamble
Interest expense
$88
$579
Income before income tax expense
983
13,369
a. Compute the times interest earned for each company. Round to one decimal place.
Clorox: fill in the blank 1
Procter & Gamble: fill in the blank 2
b. If you were a lender to these two companies, which one appears to have the greater coverage of interest expense and thus the greater protection for your loan interest?
The Clorox Company (CLX) and The Procter & Gamble Company (PG) produce and sell packaged consumer products around the world. Income and interest expense information from financial statements for a recent year follows (in millions):
Clorox
Procter & Gamble
Interest expense
$88
$579
Income before income tax expense
983
13,369
a. Compute the time's interest earned for each company. Round to one decimal place.
Clorox:
Procter & Gamble:
Analyze and compare Amazon.com, Best Buy, and Walmart
The condensed income statements through operating income for Amazon.com, Inc. (AMZN), Best Buy Co., Inc. (BBY), and Walmart Inc. (WMT) for a recent fiscal year follow (in millions):
Line Item Description
Amazon
Best Buy
Walmart
Sales
$280,522
$43,638
$523,964
Cost of sales
(165,536)
(33,590)
(394,605)
Gross profit
$114,986
$10,048
$129,359
Selling, general, and administrative expenses
(100,244)
(7,998)
(108,791)
Operating expenses
(201)
(41)
0
Operating income
$14,541
$2,009
$20,568
Question Content Area
1. Prepare comparative common-sized income statements for each company. Round percentages to one decimal place. If percentages is zero, enter "0". For those boxes in which you must enter subtractive or negative numbers use a minus sign. (Example: -300)
Comparative Income statements
Line Item Description
Amazon
Best Buy
Walmart
Sales
Sales%
Sales%
Sales%
Cost of sales
Cost of sales%
Cost of…
Chapter 11 Solutions
Corporate Financial Accounting
Ch. 11 - Describe the two distinct obligations incurred by...Ch. 11 - Explain the meaning of each of the following terms...Ch. 11 - If you asked your broker to purchase for you a 12%...Ch. 11 - A corporation issues 26,000,000 of 9% bonds to...Ch. 11 - If bonds issued by a corporation are sold at a...Ch. 11 - Prob. 6DQCh. 11 - Bonds Payable has a balance of 5,000,000 and...Ch. 11 - Prob. 8DQCh. 11 - Prob. 9DQCh. 11 - Issuing bonds at face amount On January 1, the...
Ch. 11 - Issuing bonds at a discount On the first day of...Ch. 11 - Prob. 11.3BECh. 11 - Prob. 11.4BECh. 11 - Prob. 11.5BECh. 11 - Redemption of bonds payable A 500,000 bond issue...Ch. 11 - Prob. 11.1EXCh. 11 - Entries for issuing bonds Thomson Co. produces and...Ch. 11 - Prob. 11.3EXCh. 11 - Prob. 11.4EXCh. 11 - Entries for issuing and calling bonds; loss Hoover...Ch. 11 - Entries for issuing and calling bonds; gain Mia...Ch. 11 - Prob. 11.7EXCh. 11 - Present value of amounts due Assume that you are...Ch. 11 - Prob. 11.9EXCh. 11 - Present value of an annuity On January 1 you win...Ch. 11 - Prob. 11.11EXCh. 11 - Prob. 11.12EXCh. 11 - Present value of bonds payable; premium Moss Co....Ch. 11 - Amortize discount by interest method On the first...Ch. 11 - Amortize premium by interest method Shunda...Ch. 11 - Prob. 11.16EXCh. 11 - Prob. 11.17EXCh. 11 - Bond discount, entries for bonds payable...Ch. 11 - Prob. 11.2APRCh. 11 - Entries for bonds payable, including bond...Ch. 11 - Prob. 11.4APRCh. 11 - Prob. 11.5APRCh. 11 - Bond discount, entries for bonds payable...Ch. 11 - Prob. 11.2BPRCh. 11 - Prob. 11.3BPRCh. 11 - Bond discount, entries for bonds payable...Ch. 11 - Prob. 11.5BPRCh. 11 - Continuing Company AnalysisAmazon: Times interest...Ch. 11 - Arch Coal:Times interest earned Arch Coal, Inc. is...Ch. 11 - Aeropostale: Times interest earned Aeropostale,...Ch. 11 - Prob. 11.4ADMCh. 11 - Ethics in Action CLG Capital Inc. is a large...Ch. 11 - Prob. 11.3TIF
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Analyze Amazon.com Amazon.com, Inc. (AMZN) is the largest Internet retailer in the United States. Amazons income statements through operating income for two recent years are as follows (in millions): a. Prepare a vertical analysis of the two income statements. Round percentages to one decimal place. b. Use the vertical analysis to explain the increase in operating income.arrow_forwardAnalyze and compare Hilton and Marriott Hilton Worldwide Holdings, Inc. (HLT) and Marriott International, Inc. (MAR) are two of the largest hotel operators in the world. Selected financial information from recent income statements for both companies follows (in millions): a. Compute the times interest earned ratio for each company. Round to one decimal place. b. Which company appears to better protect creditor interest? Why?arrow_forwardVertical analysis Amazon.com, Inc.is the largest Internet retailer in the United States. Amazon's income statements through income from operations for two recent years are as follows (in mH!ions): Amazon.com,Inc. Operating Income Statements For the Years Ended December 31 (in millions) Year 2 Year 1 Product sales $70,080 $60,903 Service sales 18,908 13,549 Total sales $88,988 $74,452 Cost of sales $62,752 $54,181 Fulfillment 10,766 8,585 Marketing 4,332 3,133 Technology and content 9,275 6,565 General and administrative 1,552 1,129 Other operating expense (income), net 133 114 Total operating expenses $88,810 $73,707 Income from operations $ 178 $ 745 1.Prepare a vertical analysis of the two operating income statements.Round percentages to one decimal pl 2.Use the vertical analysis to explain the decrease in income from operations.arrow_forward
- Vertical analysis Amazon.com, Inc. is the largest Internet retailer in the United States. Amazon’s income statements through income from operations for two recent years are as follows (in millions): Amazon.com, Inc. Operating Income Statements For the Years Ended December 31 (in millions) Year 2 Year 1 Product sales $70,080 $60,903 Service sales 18,908 13,549 Total sales $88,988 $74,452 Cost of sales $62,752 $54,181 Fulfillment 10,766 8,585 Marketing 4,332 3,133 Technology and content 9,275 6,565 General and administrative 1,552 1,129 Other operating expense (income), net 133 114 Total operating expenses $88,810 $73,707 Income from operations $178 $745 Required: a. Prepare a vertical analysis of the two operating income statements. Round percentages to one decimal place.arrow_forwardVertical analysis Amazon.com, Inc. is the largest Internet retailer in the United States. Amazon’s income statements through income from operations for two recent years are as follows (in millions): Amazon.com, Inc. Operating Income Statements For the Years Ended December 31 (in millions) Year 2 Year 1 Product sales $70,080 $60,903 Service sales 18,908 13,549 Total sales $88,988 $74,452 Cost of sales $62,752 $54,181 Fulfillment 10,766 8,585 Marketing 4,332 3,133 Technology and content 9,275 6,565 General and administrative 1,552 1,129 Other operating expense (income), net 133 114 Total operating expenses $88,810 $73,707 Income from operations $178 $745 Required: a. Prepare a vertical analysis of the two operating income statements. Round percentages to one decimal place. Amazon.com, Inc. Operating Income Statements For the Years Ended December 31 (in millions) Year 2 Year 1 Amount Percent Amount Percent Product sales…arrow_forwardA CMA performs a horizontal analysis on Jones Co’s historical data. Her results are shown below (in millions): Year 1 Year 2 Year 3 Year 4 Sales 250 275 280 285 Earnings Before Taxes 175 185 195 205 Tax Rate 35% 35% 35% 20% What is the percentage increase in net income from Year 1 to Year 3? Question options: 23.3% 11.4% 46.7% 55.9%arrow_forward
- Analyze and compare Kroger and Tiffany The Kroger Company (KR), a national supermarket chain, reported the following data (in millions) in its financial statements for a recent year: a.Compute the asset turnover ratio. Round to two decimal places. b.Tiffany Co. (TIF) is a large North American retailer of jewelry. Tiffanys asset turnover ratio is 0.78. Why would Tiffanys asset turnover ratio be lower than that of Kroger?arrow_forwardTimes Interest Earned The following data were taken from recent annual reports of Caliber Company, which operates a low-fare airline service to more than 50 cities in the United States: Interest expense Income before income tax expense Current Year Prior Year $74,000 $81,000 414,400 324,000 a. Determine the times interest earned ratio for the current and preceding years. Round to one decimal place. Current year Prior year b. Although Caliber Company had enough earnings to pay interest in the prior year, the by the debtholders. in this ratio will bearrow_forwardCompare Income Statements and Balance Sheets of Competitors a. Following are selected income statements from two pharmaceutical companies, Pfizer and Dr. Reddy's, for their respective 2018 fiscal years. Express each income statement amount as a percentage of sales. Note: Round percentage to one decimal point (for example, round 18.566% to 18.6%). Income Statement ($ millions) Sales Pfizer Dr. Reddy's $46,136 0% $1,876 09 Cost of goods sold 11,248 0% 1,009 0% Gross profit 34,888 0% 867 0% Total expenses Net income 26,841 $8,047 0% 0% 878 $(11) 0% 0% b. Following are selected balance sheets from two pharmaceutical companies, Pfizer and Dr. Reddy's, for their respective 2018 fiscal years. Express each balance sheet amount as a percentage of total assets. Note: Round percentage to one decimal point (for example, round 18.566% to 18.6%). Balance Sheet ($ millions) Pfizer Dr. Reddy's Current assets $42,936 0% $1,448 0% Long-term assets Total assets 109,496 $152,432 0% 1,781 096 0% $3,229 09…arrow_forward
- How do I calculate times interest earned here: Apple Inc. Consolidated Statement of Operations Fiscal year ended (in millions) Sept. 24, 2016 Sept. 26, 2015 Net sales $ 215,639 $ 233,715 Cost of sales 131,376 140,089 Gross margin 84,263 93,626 Operating expenses Research and development 10,045 8,067 Selling, general and administrative 14,194 14,329 Total operating expenses 24,239 22,396 Operating income 60,024 71,230 Interest and dividend income 3,999 2,921 Interest expense (1,456) (733) Other expense, net (1,195) (903) Income before provision for income taxes 61,372 72,515 Provision for income taxes 15,685 19,121 Net income $ 45,687 $ 53,394arrow_forwardTimes Interest Earned The following data were taken from recent annual reports of Caliber Company, which operates a low-fare airline service to more than 50 cities in the United States: Current Year Prior Year Interest expense $51,000 $56,000 Income before income tax expense 173,400 100,800 a. Determine the times interest earned ratio for the current and preceding years. Round to one decimal place. Current year Prior year b. Although Caliber Company had enough earnings to pay interest in the prior year, the in this ratio will be by the debtholders.arrow_forwardComputing times-interest-earned ratio The following financial information was obtained from the year ended 2018 income statements for Cash Automotive and Pennington Automotive: Requirements Compute the times-interest-earned ratio for each company Round to two decimals. Which company was better able to cover its interest expense?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
How To Analyze an Income Statement; Author: Daniel Pronk;https://www.youtube.com/watch?v=uVHGgSXtQmE;License: Standard Youtube License