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Analyzing, Forecasting, and Interpreting Both Income Statement and Balance Sheet Following are the income statements and balance sheets of Amazon.com Inc. AMAZON.COM INC. Consolidated Statement

Analyzing, Forecasting, and Interpreting Both Income Statement and Balance Sheet Following are the income statements and balance sheets of Amazon.com Inc.

AMAZON.COM INC.
Consolidated Statement of Operations
$ millions Dec. 31, 2015 Dec. 31, 2014
Net product sales $79,268 $70,080
Net service sales 27,738 18,908
Total net sales 107,006 88,988
Operating expenses
Cost of sales 71,651 62,752
Fulfillment 13,410 10,766
Marketing 5,254 4,332
Technology and content 12,540 9,275
General and administrative 1,747 1,552
Other operating expense (income), net 171 133
Total operating expenses 104,773 88,810
Income from operations 2,233 178
Interest income 50 39
Interest expense (459) (210)
Other income (expense), net (256) (118)
Total non-operating (expense) (665) (289)
Income (loss) before income taxes 1,568 (111)
Provision for income taxes (950) (167)
Equity-method investment activity, net of tax (22) 37
Net income (loss) $596 $(241)

AMAZON.COM INC.
Consolidated Balance Sheets
In millions, except par value Dec. 31, 2015 Dec. 31, 2014
Current Assets
Cash and cash equivalents $15,890 $14,557
Marketable securities 3,918 2,859
Inventories 10,243 8,299
Accounts receivable, net and other 6,423 5,612
Total current assets 36,474 31,327
Property and equipment, net 21,838 16,967
Goodwill 3,759 3,319
Other assets 3,373 2,892
Total assets $65,444 $54,505
Current Liabilities
Accounts payable $20,397 $16,459
Accrued expenses and other 10,384 9,807
Unearned revenue 3,118 1,823
Total current liabilities 33,899 28,089
Long-term debt 8,235 8,265
Other long-term liabilities 9,926 7,410
Stockholders' equity
Preferred stock, $0.01 par value: Authorized shares-500
Issued and outstanding shares-none 0 0
Common stock, $0.01 par value: Authorized shares-5,000
Issued shares-494 and 488 Outstanding shares-471 and 465 5 5
Treasury stock, at cost (1,837) (1,837)
Additional paid-in capital 13,394 11,135
Accumulated other comprehensive loss (723) (511)
Retained earnings 2,545 1,949
Total stockholders' equity 13,384 10,741
Total liabilities and shareholders' equity $65,444 $54,505

Forecast Amazon's 2016 income statement using the forecast assumptions, which are expressed as a percentage of total net sales unless otherwise indicated ($ in millions).

Net product sales growth 15%
Net service sales growth 40%
Cost of sales 67.0%
Fulfillment 12.5%
Marketing 4.9%
Technology and content 11.7%
General and administrative 1.6%
Interest income $60
Interest expense $520
Income tax expense (% pretax income) 38%
  • Forecast no change in the following income statement accounts: Other operating expense, net, Other expense, net; and Equity method investment activity.
  • Do not use negative signs with any of your answers in the income statement.

AMAZON.COM INC.
Forecated Income Statement
$ millions 2016
Net product sales 91,158
Net service sales 38833
Total net sales 129991
Operating expenses
Cost of sales 87094
Fulfillment 16249
Marketing 6370
Technology and content 15209
General and administrative 2080
Other operating expense, net 171
Total operating expenses 127173
Income from operations 2818
Interest income 60
Interest expense -520
Otherexpense, net -256
Total non-operating income -716
Income (loss) before income taxes 2102
Provision for income taxes -799
Equity-method investment activity, net of tax -22
Net income (loss) 1281

Forecast Amazon's 2016 balance sheet using the forecast assumptions, which are expressed as a percentage of total net sales unless otherwise indicated ($ in millions).

Inventories 9.6%
Accounts receivable, net and other 6.0%
Other assets 3.2%
Accounts payable 19.1%
Accrued expenses and other 9.7%
Unearned revenue 2.9%
Other long-term liabilities 9.3%
  • Forecast no change in the following balance sheet accouts: Marketable securities, Goodwill, Preferred stock, Common stock, Treasury stock, APIC, and AOCL.
  • Assume that in 2016, CAPEX will be 4.3% of Sales and depreciation expense will be 28.9% of the PPE balance at the start of the year.
  • The company will repay $238 million of long-term debt in 2016.
  • The company pays no dividends.
  • Round answers to the nearest whole number.

  • Do not use negative signs with any of your answers in the balance sheet.
AMAZON.COM INC.
Forecasted Balance Sheet
in millions 2016
Current Assets
Cash and cash equivalents Answer
Marketable securities Answer
Inventories Answer
Accounts receivable, net and other Answer
Total current assets Answer
Property and equipment, net Answer
Goodwill Answer
Other assets Answer
Total assets Answer
Current Liabilities
Accounts payable Answer
Accrued expenses and other Answer
Unearned revenue Answer
Total current liabilities Answer
Long-term debt Answer
Other long-term liabilities Answer
Total liabilities Answer
Stockholders' equity
Preferred stock, $0.01 par value: Authorized shares-500
Issued and outstanding shares-none Answer
Common stock, $0.01 par value: Authorized shares-5,000
Issued shares-494 and 488 Outstanding shares-471 and 465 Answer
Treasury stock, at cost Answer
Additional paid-in capital Answer
Accumulated other comprehensive loss Answer
Retained earnings Answer
Total stockholders' equity Answer
Total liabilities and shareholders' equity Answer

b. What does the forecasted adjustment to balance the accounting equation from part a reveal to us about the forecasted cash balance and related financing needs of the company? Explain. Check and choose the best answer:

- Amazon will generate sufficient cash for the coming year. The cash balance decreases fairly significantly, we could adjust marketable securities, increasing total assets.

- Amazon will generate sufficient cash for the coming year. The cash balance increases fairly significantly, we could adjust marketable securities, leaving total assets unchanged.

- Amazon will not generate sufficient cash for the coming year. The cash balance decreases fairly significantly, we could adjust marketable securities, leaving total assets unchanged.

- Amazon will not generate sufficient cash for the coming year. The cash balance decreases fairly significantly, we could adjust short-term debt, increasing total assets unchanged.

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