Intermediate Accounting- Please make sure do not look at any materials or answers online, all your answers have to be original.

Chapter 13 - financial statement analysis discussion case

Please complete the financial statement analysis case (Case 1 Northland Cranberries OR Case 2 Mohican Company OR Case 3 BOP Clothing).

Case 2: Mohican Company Presented below is the current liabilities section and related note of Mohican Company. Mohican Company (dollars in thousands) Current Year Prior Year Current liabilities Current portion of long-term debt $15,000 $10,000 2,668 405 Accounts payable 29,495 42,427 Accrued warranty 16,843 16,741 Accrued marketing programs 17,512 16,585 Other accrued liabilities 35,653 33,290 16,206 17,348 $133,377 $136,796 Short-term debt Accrued and deferred income taxes Total current liabilities Notes to Consolidated Financial Statements Note 1 (in part): Summary of Significant Accounting Policies and Related Data Accrued Warranty The company provides an accrual for future warranty costs based upon the relationship of prior years' sales to actual warranty costs. Instructions Answer the following questions. (a) What is the difference between the cash basis and the accrual basis of accounting for warranty costs? (b) Under what circumstance, if any, would it be appropriate for Mohican Company to recognize deferred revenue on warranty contracts? (c) If Mohican Company recognized deferred revenue on warranty contracts, how would it recognize this revenue in subsequent periods? Case 3: BOP Clothing Co. As discussed in the chapter, an important consideration in evaluating current liabilities is a company's operating cycle. The operating cycle is the average time required to go from cash to cash in generating revenue. To determine the length of the operating cycle, analysts use two measures: the average days to sell inventory (inventory days) and the average days to collect receivables (receivable days). The inventory-days computation measures the average number of days it takes to move an item from raw materials or purchase to final sale (from the day it comes in the company's door to the point it is converted to cash or an account receivable). The receivable-days computation measures the average number of days it takes to collect an account. Most businesses must then determine how to finance the period of time when the liquid assets are tied up in inventory and accounts receivable. To determine how much to finance, companies first determine accounts payable dayshow long it takes to pay creditors. Accounts payable days measures the number of days it takes to pay a supplier invoice. Consider the following operating cycle worksheet for BOP Clothing Co. BOP Clothing Co. 2016 2017 $ 45,000 $ 30,000 Accounts receivable 250,000 325,000 Inventory 830,000 800,000 Accounts payable 720,000 775,000 Purchases 1,100,00 0 1,425,00 0 Cost of goods sold 1,145,00 0 1,455,00 0 Sales 1,750,00 0 1,950,00 0 Inventory days1 264.6 200.7 Receivable days2 52.1 60.8 Operating cycle 316.7 261.5 Less: Accounts payable days3 238.9 198.5 77.8 63.0 $ $ Cash Operating Cycle Days to be financed Working capital BOP Clothing Co. 2016 2017 405,000 380,000 Current ratio 1.56 1.49 Acid-test ratio 0.41 0.46 These data indicate that BOP has reduced its overall operating cycle (to 261.5 days) as well as the number of days to be financed with sources of funds other than accounts payable (from 78 to 63 days). Most businesses cannot finance the operating cycle with accounts payable financing alone, so working capital financing, usually shortterm interest-bearing loans, is needed to cover the shortfall. In this case, BOP would need to borrow less money to finance its operating cycle in 2017 than in 2016. Instructions (a) Use the BOP analysis to briefly discuss how the operating cycle data relate to the amount of working capital and the current and acid-test ratios. (b) Select two other real companies that are in the same industry and complete the operating cycle worksheet, along with the working capital and ratio analysis. Briefly summarize and interpret the results. To simplify the analysis, you may use ending balances to compute turnover ratios. [Adapted from Operating Cycle Worksheet at www.entrepreneur.com]