Amazon.com, Inc. —like all other businesses—adjusts accounts prior to year end to get correct amounts for the financial statements. Examine Amazon.com, Inc.’s Consolidated Balance Sheets in Appendix A, and pay particular attention to “accrued expenses and other.”

Requirements
1. Why does a company have accrued expenses payable at year end?
2. Open a T-account for “Accrued Expenses and Other.” Insert Amazon.com, Inc.’s balance (in millions) at December 31, 2009.
3. Journalize the following transactions for the year ended December 31, 2010. Key entries by letter, and show amounts in millions. Explanations are not required.
a. Paid off the beginning balance of “Accrued Expenses and Other”
b. Recorded operating expenses, other than cost of sales, of $6,237 million, paying
$3,916 million in cash and accruing the remainder
4. Post these entries to “Accrued Expenses and Other” and show that the ending balance of the account agrees with the corresponding amount reported in Amazon.com, Inc.’s December 31, 2010, Consolidated Balance Sheets.
5. Compute net working capital, the current ratio, and the debt ratio for Amazon.com, Inc., at December 31, 2009, and December 31, 2010. Did the amount of working capital and ratio values improve, deteriorate, or hold steady during 2010? Do Amazon.com, Inc.’s ratio values indicate relative financial strength or weakness?