- Assume that Netflix made the following mistake in preparation of its 2015 statements, and no adjustments were made:
No entry for accrued interest earned of $4 on debt securities in short-term investments was made.
What would be the effect of the error on the following amounts at year-end of 2015? Circle U/S for understate, O/S for overstate, or NE for no effect. Ignore income tax effects. (12 points)
- Total Liabilities US OS NE
- Income Before Income Taxes US OS NE
- Total Assets US OS NE
- Stockholders Equity at Year-End US OS NE
NETFLIX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Revenues $ $ 2015 6,779,511 4,591,476 824,092 650.788 2013 4.374.562 3,117,203 Year ended December 31, 2014 $ 5,504,656 3,752,760 607,186 472,321 269,741 402.648 469,942 407,329 305,826 378,769 180,301 228,347 (132,716) (50,219) (3,060) (31,225) Cost of revenues Marketing Technology and development General and administrative Operating income Other income (expense) Interest expense Interest and other income (expense) Loss on extinguishment of debt Income before income taxes Provision for income taxes Net income Earnings per share: Basic Diluted Weighted-average common shares outstanding: Basic Diluted (29.142) (3,002) (25,129) 171,074 58,671 112,403 141.885 19.244 122,641 349,369 82,570 266,799 $ $ $ 0.29 $ 0.63 $ 0.28 $ 0.28 $ 0.62 $ 0.26 425,889 436,456 420,544 431,894 407,385 425.327 See accompanying notes to consolidated financial statements 2013 112,403 (3,030,701) 673,785 2,121,981 71,325 48,374 73,100 (81,663) 5,332 25,129 (22,044) 43,177 18,374 1,941 46,295 (8,977) 97,831 NETFLIX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS in thousands) Year Ended December 31, 2015 2014 Cash flows from operating activities: Net income $ 122,6415 266,799 $ Adjustments to reconcile net income to net cash (used in) provided by operating activities: Additions to streaming content assets (5,771,652) (3,773,019) Change in streaming content liabilities 1,162,413 593,125 Amortization of streaming content assets 3,405,382 2,656,279 Amortization of DVD content assets 79,380 71,491 Depreciation and amortization of property, equipment and intangibles 62,283 54,028 Stock-based compensation expense 124,725 115,239 Excess tax benefits from stock-based compensation (80,471) (89,341) Other non-cash items 31,628 15,282 Loss on extinguishment of debt Deferred taxes (58,655) (30,063) Changes in operating assets and liabilities: Other current assets 18,693 (9,198) Accounts payable 51,615 83,812 Accrued expenses 48,810 55,636 Deferred revenue 72,135 58,819 Other non-current assets and liabilities (18,366) (52,406) Net cash (used in provided by operating activities (749,439) 16,483 Cash flows from investing activities: Acquisition of DVD content assets (77,958) (74,790) Purchases of property and equipment (91,248) (69,726) Other assets (1,912) 1,334 Purchases of short-term investments (371,915) (426,934) Proceeds from sale of short-term investments 259,079 385,300 Proceeds from maturities of short-term investments 104,762 141,950 Net cash used in investing activities (179,192) (42.866) Cash flows from financing activities: Proceeds from issuance of common stock 77,980 60,544 Proceeds from issuance of debt 1,500,000 400,000 Issuance costs (17,629) (7,080) Redemption of debt Excess tax benefits from stock-based compensation 80,471 89,341 Principal payments of lease financing obligations (545) (1,093) Net cash provided by financing activities 1,640,277 541,712 Effect of exchange rate changes on cash and cash equivalents (15,924) (6,686) Net increase in cash and cash equivalents 695,722 508,643 Cash and cash equivalents, beginning of year 1,113,608 604,965 Cash and cash equivalents, end of year $ 1,809,330 $ 1,113,608 $ Supplemental disclosure: Income taxes paid $ 27,658 5 50,5735 Interest paid 111,761 41,085 Investing activities included in liabilities 18,824 23,802 See accompanying notes to consolidated financial statements. (65,927) (54,143) 5,939 (550,264) 347,502 60,925 (255,968) 124,557 500,000 (9,414) (219,362) 81,663 (1,180) 476,264 (3,453) 314,674 290,291 604,965 7,465 19,114 11,508 NETFLIX, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) As of December 31, 2014 2015 $ 1,809,330 $ 501,385 2,905,998 215,127 5,431,840 4,312,817 173,412 284,802 10,202,8715 1,113,608 494,888 2,166,134 152,423 3,927,053 2,773,326 149,875 192,246 7,042,500 $ $ $ 2,117,241 201,581 69,746 Assets Current assets: Cash and cash equivalents Short-term investments Current content assets, bet Other cwreat assets Total current assets Non-current content assets, bet Property and equipment, net Other non-current assets - Total assets Liabilities and Stockholders' Equity Current liabilities: Current content liabilities Accounts payable Accrued expenses Deferred revenue Total current liabilities Non-current content liabilities Long-term debt Other non-current liabilities Total liabilities Commitments and contingencies (Note 6) Stockholders' equity Preferred stock, 50.001 par value; 10,000,000 shares authorized at December 31, 2015 and 2014; no shares issued and outstanding at December 31, 2015 and 2014 Common stock, $0.001 par value; 4.990,000,000 and 160,000,000 shares authorized at December 31, 2015 and December 31, 2014, respectively; 427,940,440 and 422,910,887 issued and outstanding at December 31, 2015 and December 31, 2014, respectively Accumulated other comprebensive loss Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 2,789,0235 253,491 140,389 346,721 3,529,624 2,026,360 2.371.362 52.099 7,979,445 274,586 2,663,154 1,575,832 885.849 59.957 5,184,792 1,324,809 (43,308) 041.925 2,223,426 10,202,8715 1,042,870 (4,446) 819,284 1,857,708 7,042,500 See accompanying notes to consolidated financial statements Selected Notes to the Financial Statements: Note 1. Property and Equipment Property and equipment are carried at cost less accumulated depreciation Depreciation is calculated using the straight-line method over the shorter of the estimated useful lives of the respective assets, generally up to 30 years, or the lease term for leasehold improvements, if applicable. Leased buildings are capitalized and included in property and equipment when the Company was involved in the construction funding and did not meet the "sale-leaseback" criteria. Revenue Recognition Revenues are recognized ratably over each monthly membership period. Revenues are presented net of the taxes that are collected from members and remitted to governmental authorities. Deferred revenue consists of membership fees billed that have not been recognized and gift and other prepaid memberships that have not been redeemed
