4. The amount of current taxes owed by Finish Line at the end of the year is reported on its consolidated balance sheet as a current liability, most likely as part of “Other li- abilities and accrued expenses.” 5. Information about the company’s retirement plan is found in the notes to the consoli- dated financial statements. Specifically, Note 6 titled “Retirement Plan” explains the nature of the plan and how contributions are made to it. LO 2 DECISION CASE 1-2 READING AND INTERPRETING FINISH LINE’S FINANCIAL STATEMENTS 1. 2006 Net income: $60,533,000 2. Assets = Liabilities + Stockholders’ Equity $627,816,000 = $199,274,000 + $428,542,000
DECISION CASE 1-2 (Concluded) 3. Beginning balance, February 26, 2005 $263,971,000 Add: 2006 net income 60,533,000 Deduct: 2006 dividends (4,848,000 ) Ending balance, February 25, 2006 $319,656,000 LO 2,4 DECISION CASE 1-3 COMPARING TWO COMPANIES IN THE SAME INDUSTRY: FINISH LINE AND FOOT LOCKER 1. Finish Line reported net sales for 2006 of $1,306,045,000. This amount represented an increase from the sales reported in the prior year. Foot Locker reported sales in 2005 of $5,653,000,000, which also represented an increase from the amount re- ported in the prior year. 2. In 2006, Finish Line reported net income of $60,533,000, a decrease from the net in- come in 2005. Foot Locker’s net income in 2005 was $264,000,000, which was also a decrease from the prior year’s amount. 3. Finish Line’s total assets at the end of 2006 amounted to $627,816,000. Merchan- dise inventories, net were the largest asset category on the company’s balance sheet. Foot Locker reported total assets at the end of 2005 of $3,312,000,000 and the largest of its assets was its merchandise inventories. 4. The statement of cash flows for both companies indicate that they both paid their stockholders dividends during the year. 5. The auditors’ reports for the two companies contain the same basic information about how the audits were conducted and the findings from the audits. Because the companies have different year-ends, the various dates in the reports differ, but the information presented to the board of directors and the shareholders is the same.
CHAPTER 1 • ACCOUNTING AS A FORM OF COMMUNICATION 1-33 MAKING FINANCIAL DECISIONS LO 1 DECISION CASE 1-4 AN INVESTMENT OPPORTUNITY All investments require a trade-off between risk and return. A college education may have intrinsic value, but it is risky in that it does not assure anyone of a job upon gradu- ation. However, the return may be worth the risk involved in committing one’s life sav- ings to a college education if the degree allows one the opportunity to make a start on a career. Certainly, the offer to commit your savings to your high school friend’s art gallery involves a significant amount of risk. The friend’s prediction that you will be able to sell the artwork for 10 times the cost of your investment is subject to considerable uncer- tainty. Both investments, in a college education and in an art gallery, require an assess- ment of the risks and returns.
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