Course Project -Amazon

.docx

School

DeVry University, Keller Graduate School of Management *

*We aren’t endorsed by this school

Course

505

Subject

Accounting

Date

Feb 20, 2024

Type

docx

Pages

Uploaded by rbenenati

An Analysis of the Financial Statements of Tesla, Sarah Rose Benenati ACCT550 – Intermediate Accounting I Professor Shaik August 2023

1. What is the fiscal year for which this report was filed? You need to include the month and the year. Does this company's fiscal year-end coincide with a calendar year-end? The 10-K report being discussed in this paper was filed for the fiscal year ended December 31, 2022, which coincides with a calendar year-end. 2. What products and/or services does this company sell? Please be detailed. Amazon.com, Inc. is an American multinational technology company focusing on e- commerce, cloud computing, online advertising, digital streaming, and artificial intelligence. Amazon sells retail goods including, but not limited to, books, DVDs, music CDs, software, apparel, baby products, electronics, beauty products, groceries, health and personal care items, industrial supplies, home items and decor, jewelry, musical instruments, sporting goods, tools, automotive items, and games. Amazon also sells consumer electronics, through the launch of Kindle in November 2007, which is an e-reader device that enables users to browse, download, buy, and read e- books, newspapers, magazines, and other digital media. Aside from the Kindle Store, Amazon provides other digital media, such as Amazon Music, an online music store, and Amazon Studios, a corporate division that develops television shows, movies and comics distributed through Amazon Video, Amazon’s digital streaming video service.

Amazon’s most popular feature is Amazon Prime, a membership offering free two-day shipping within the contiguous United States on all eligible purchases for a flat annual fee in 2022 of $119 or $12.99/month, as well as discounted one-day shipping rates. 3. What major industry does this company operate in? Please also name at least two competitors. Amazon is considered to be one of the Big Five companies in the American information technology industry, alongside Alphabet, Apple, Meta, and Microsoft. 4. What are two risks identified by management? Please describe these risks. According to management, two of the biggest risk factors that Amazon faces are intense competition and expansion related risks. Amazon has competitors across geographies and in different industries. Many of these competitors, both current and potential, have greater resources, greater brand recognition, longer histories, and more customers. This is particularly concerning in regards to newly launched products and services by Amazon in newer geographic regions, wherein customers may find better terms and pricing from other vendors. As Amazon continues to aggressively expand its global operations and increase its product and service offerings, “the complexity of the current scale of [their] business can place significant strain on [their] management, personnel, operations, systems, technical performance, financial resources, and internal financial control and reporting functions,” (Form 10-K 2022). Since expansion only increases those factors, failure to manage growth efficiently could cause damage to Amazon’s reputation and negatively affect its operating

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

results, limiting its growth potential. Expansion also poses external risks, such as customers not adopting new product and service offerings or experiencing service disruptions, failures, or other quality issues. If customers do not respond well to new product and service offerings, then profitability in these newer markets and activities may not be successful enough to recoup the investments Amazon has put into them. 5. Who are the firm's independent auditors? What is the role of these auditors? Amazon’s independent auditors are Ernst & Young, LLP. The role of these independent auditors is to examine the company’s financial statements and provide a written report that contains an opinion as to whether the financial statements are fairly stated and are in accordance with GAAP, the US Public Company Accounting Oversight Board (PCAOB), and the SEC. These auditors also review the internal controls of the company to assure that the company’s systems are appropriately designed and are operating effectively, based on criteria established in the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the 2013 COSO criteria) and that financial reporting was maintained in all material respects in accordance to the standards of the PCAOB. 6. What opinion does the independent auditors express regarding the financial statements? Please state in your own words what this opinion would mean to an investor.

Ernst & Young LLP (EY) holds the opinion that Amazon.com, Inc. has maintained effective internal control over financial reporting, in all material aspects, based on the COSO criteria. Ernst & Young also holds an unqualified opinion regarding Amazon’s financial statements for the last three years. An unqualified opinion from an independent auditor means that the company’s financial statements are fairly and appropriately represented and in compliance with GAAP, without any identified exceptions. This is the most common judgment issued by auditors, and should be viewed as a reassuring sign to investors, as it essentially expresses that the company has a clean report and that the auditor is satisfied with the company’s reporting. EY also states that, “because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements,” (Form 10-K 2022), and that projections of future periods are subject to the risk that changes in conditions, procedures, and/or policies may cause internal controls to become inadequate. I do not think that this disclaimer should deter investors, as this is also a common disclaimer for an auditor’s report to contain. 7. Provide two examples of where historical cost is used within the financial statements. State both the account name and the amount for each account you select. Amazon references the use of historical cost regarding Return Allowances and Accounts Receivable. As stated in their 2022 Form 10-K, return allowances, which

reduce revenue and cost of sales, are estimated using “historical experience.” Liabilities for return allowances are included in the Accrued Expenses and Other section, and were $859 million, $1.0 billion, and $1.3 billion as of December 31 2020, 2021, and 2022. Regarding accounts receivable, Amazon estimates losses on receivables based on expected losses, including their historical experience of actual losses. In particular, the allowance for doubtful accounts was $1.1 billion, $1.1 billion, and $1.4 billion as of December 31, 2020, 2021, and 2022. 8. What was the amount of revenue that the company reported for the most recent year? Did the revenue grow over the prior year? Discuss both the dollar and the percentage increase or decrease. Amazon’s net sales include product and service sales. Consolidated (North America, International, and AWS) net sales for 2022 was $513,983 million, compared to $469,822 million in 2021. This is a growth $44,161 million ($513,983 - $469,822 = $44,161), or a 9% increase [growth rate = (end value / starting value) x 100 → $44,161 / $513,983 = 0.0859 x 100 = 8.59 = 9%). 9. What was the amount of net income or net loss that the company reported for the most recent year? Did the net income increase or decrease versus the prior year? Discuss both the dollar and the percentage increase or decrease. Amazon’s consolidated net income for 2022 was $12,248 million, compared to $24,879 million in 2021. This is a decrease in net income of $12,631 or a decrease of 49% (12,248 / 24,879 = 0.4923 x 100 = 49.23 = 49%). Amazon clarifies that this

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

decrease in net operating income was due to increased fulfillment and shipping costs, transportation costs, and increases in investments in their fulfillment network, wage rates and incentives, and increased technology and content costs. 10.What was the amount of cash (and cash equivalents) that the company reported for the most recent year? Please state the amounts for each item you included in this number. Amazon’s amount of cash, cash equivalents, and restricted, at fair value, was $54,253 million for 2022. This ending balance is a product of the following: Starting balance of $36,477 million, plus net cash provided by operating activities of $46,752 million, less net cash provided by investing activities of ($37,601 million), plus net cash provided by financing activities of $9,718 million, less the effect of foreign currency of ($1,093 million). (36,477 + 46,752 - 37,601 + 9,718 - 1,093 = 54,253). 11.How much working capital does the company have for the most recent year? Please discuss the components of working capital. Be sure to show your calculations for full credit. Amazon’s working capital for 2022 was negative $8,602 million. Working Capital is determined by taking the total current assets less total current liabilities. Amazon’s total current assets for 2022 was $146,791 million, and its total current assets were

$155,393 million. (146,791 - 155,393 = -8,602). A negative working capital means that Amazon’s current assets in 2022 were not enough to pay off its current liabilities. In other words, Amazon had more short-term debt than it had short-term resources in 2022. 12.What is the amount of the total assets that the company reported for the most recent year? Please list the assets you included. Amazon’s total assets in 2022 was $462,675 million. This total assets included Cash and Cash Equivalents of $53,888 million, Marketable Securities of $16,138 million, Inventories of $34,405 million, Accounts Receivable of $42,360 million, Property and Equipment of $186,715 million, Operating Leases of $66,123 million, Goodwill of $20,288 million, and Other Assets of $42,758 million. 13.What is the amount of the total liabilities that the company reported for the most recent year? Please list the liabilities you included. Amazon’s total liabilities for 2022 amounted to $316,632 million. This includes Accounts Payable of $79,600 million, Accrued Expenses of $62,566 million, Unearned Revenue of $13,227 million, Long-Term Lease Liabilities of $72,968 million, Long- Term Debt of $67,150 million, and Other Long-Term Liabilities of $21,121 million.

14.What was the free cash flow for the most recent year? Show the formula you used and your calculations for full credit. Please explain the importance of free cash flow. Amazon’s free cash flow for 2022 was negative $11,569 million. This was calculated using the following formula: Free Cash Flow = Operating Cash Flow - Capital Expenditures. Amazon’s net cash provided by operating activities in 2022 was $46,752 million, and its purchases of property and equipment, net of proceeds from sales and incentives was ($58,321 million). (46,752 - 58,321 = -11,569). Free cash flow is important because it gives insight into a company’s financial health. It is the amount of money a company has left over after paying for its operating expenses and capital expenditures. The more free cash flow a company has, the more it can allocate to dividends, paying down debt, and growth opportunities. Having a negative free cash flow means that there is more money leaving than entering the business. This means that the company has no excess cash on hand in a given period, which could be a sign of poor financial health, or could mean that there are low revenues and high capital expenditures. 15.Provide an example of an account that requires present value calculations. State both the account name and the amount for the account you select. One account of Amazon that requires present value calculations are Leases. Amazon’s Lease liabilities are recognized at the present value of fixed lease payments, less landlord incentives, “using a discount rate based on similarly secured

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

borrowings available to [them],” (Form 10-K 2022). The amount that Amazon reported for total lease liabilities in 2022 was $17,157 million. 16.What inventory method does the company employ? Please explain how this method works. The method that Amazon uses for inventory valuation is the First In, First Out method, primarily, and inventories are valued at the Lower of Cost and Net Realizable Value. The first-in-first-out (FIFO) method of valuing inventory means that the assets which are produced or acquired first are sold, used, or disposed of first. Valuing inventory at the lower of cost and net realizable value means that inventory should be reported at the lower of its cost or the amount at which it can be sold. 17.Calculate the inventory turnover for the most recent year. Please explain what inventory turnover tells an investor. Inventory turnover ratio shows how many times a company has sold and replaced its inventory during a given period, relative to its cost of goods sold (COGS). By then dividing the number of days in a given period, typically a fiscal year, by the inventory turnover ratio, a company can determine how many days, on average, it takes to sell their inventory. The inventory turnover is calculated by taking COGS divided by average value of inventory. Amazon’s inventory turnover was approximately 42 days, meaning it turned over its inventory every 42 days on average during the year.

This was found by the following calculations: Inventory Turnover = COGS / Average Value of Inventory Average Inventory = (Current Inventory + Previous Inventory) / Number of Periods. Amazon Average Inventory = ($34,405 + $32,640) / 2 = $67,045 / 2 = $33,522.5 = $33,523M Amazon Inventory Turnover = $288,831 / $33,523 = 8.6159 = 8.6 Amazon Days Inventory = 365 days / 8.6 = 42.44 = 42 days 18.What depreciation method does the company employ? Please explain how this depreciation method works. Amazon uses a straight-line depreciation basis to record its depreciation and amortization. The straight-line method of accounting for depreciation assumes that an asset loses value at a constant rate. This method is the simplest way to calculate the loss of value of an asset over time. Straight-line depreciation is determined by taking the difference between an asset’s cost and its expected salvage value and dividing it by the number of years it is expected to be used (useful life).

Straight-line depreciation = (Purchase Price of Asset - Salvage Value) / Estimated Useful Life of Asset 19.What is the useful lives for the various types of property, plant, and equipment owned by the company? Please list the asset type and the useful lives. Amazon’s equipment includes the following assets: servers and networking equipment, heavy equipment, and other fulfillment equipment. The estimated useful lives of their assets are the following. For buildings, the useful life is the lesser of forty years or the remaining life of the underlying building. For servers, the useful life is four years prior to January 1, 2022 and five years subsequent to January 1, 2022. For networking equipment, the useful life is five years prior to January 1, 2022 and six years subsequent to January 1, 2022. For heavy equipment, the useful life is ten years. Finally, for other fulfillment equipment, the useful life is three to ten years. 20.Does the company have any impaired assets? Please explain. Amazon reported the following in terms of impaired assets in 2022. Amazon reported $1.1 billion in impairments of property and equipment and operating leases, primarily related to physical stores. Amazon considers receivables to be impaired and written- off when it is, “probable that all contractual payments due will not be collected in accordance with the terms of the agreement,” (Form 10-K 2022). During 2022, Amazon’s allowance for doubtful accounts was $1.4 billion. Amazon’s produced and licensed video content, referred to as film groups, are evaluated for impairment whenever a change occurs indicating that the fair value is less than the carrying value.

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

In 2022, Amazon capitalized costs of these film groups of $16.7 billion and expensed $16.6 billion. Amazon completes an annual impairment test of goodwill for all reporting units and indefinite-lived intangible assets. As of April 1, 2022, these tests resulted in no impairments. Therefore, there were no events in 2022 that cause Amazon to update their annual impairment test regarding acquisitions, goodwill, and acquired intangible assets. References: Amazon.com, Inc. (2023, February 2). Form 10-K 2022. https://www.sec.gov/Archives/edgar/data/1018724/000101872423000004/amzn- 20221231.htm What We Do . US About Amazon. (2020, September 21). https://www.aboutamazon.com/what-we-do

Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2022). Intermediate Accounting (18th ed.). Wiley.

Related Questions

A paragrap stating your evaluation of companys performance and financial status fir quarter wnding March 30. 2022

ACCT101 FALL 2020-2021 Collection of an R.O 1500 Accounts Receivable. The effect on the components of the basic accounting equation of the Company is: Select one: a. Decreases a liability R.O 1500; increases owner's equity R.O 1500. O b. Increases an asset R.O 1500; decreases an asset R.O 1500. c. Increases an asset R.O 1500; decreases a liability R.O 1500. O d. Decreases a liability R.O 1500; decreases a liability R.O 1500. e. Decreases an asset R.O 1500; decreases a liability R.O 1500. Nextage

Eexamine the following attached in ss beelow thanks for help l4py2 y25yp 2y 2

May I ask for an explanation and solution to the question for a better understanding. Thank you! Selected information for Cain Corp. for the year ended December 31, 2021 are as follows: Average days' sales in inventories = 124; Average days' sales in accounting receivable = 48. The average number of days in the operating cycle for 2021 was: a. 172 b. 124 c. 86 d. 76

Hespeler services financial accounting information for the year ending October 2019 is presented below , assume all accounts have a normal balance

attached in ss below thanks for hlp appareicated it apizaepigjwr hwhp 5whjipw5hw ihw 5

33 Calorie Catering completed the following selected transactions during May 2024: (Click the icon to view the transactions.) Read the requirements Requirement 1. Show whether each transaction would be handled as a revenue or an expense using both the cash basis and accrual basis accounting systems by completing the table provided. (Expenses should be shown in parentheses.) Also indicate the dollar amount of the revenue or expense. The May 1 transaction has been completed as an example. (Enter "0" for any transactions that do not affect revenues or expenses.) Date May 1 Help me solve Amount of Revenue (Expense) for May Cash Basis Amount of Revenue (Expense) $ (1,500) More info May 1 May 5 May 9 May 14 May 23 May 31 May 31 May 31 Accrual Basis Amount of Revenue (Expense) $ 0 Prepaid rent for three months, $1,500. Received and paid electricity bill, $400. Received cash for meals served to customers, $2,700. Paid cash for kitchen equipment, $3,120. Served a banquet on account, $2,900.…

Perform a horizontal analysis for Davis Inc. Use 2017 as the base year

Pls General Accounting Question Solution

Question You work as a freelance accounting professional and have beenrecently engaged by the auditors of Life-Positive Inc. for anassignment. In examining the company’s records, you have extractedthe following information: Life-Positive’s Account Balances 2021 ($) 2022 ($) accounts payable 24,600.00 21,250.00Accounts receivable 15,700.00 12,340.00Cash 23,450.00 28,600.00Cost of goods sold 19,700.00 23,000.00Depreciation 3,090.00 4,590.00Dividends 5,800.00 10,800.00Interest 2,340.00 2,890.00Inventory 7,050.00 8,640.00Long-term debt 28,000.00 30,000.00Net fixed assets 41,500.00 48,000.00Other expenses 2,400.00 2,800.00Sales…