6.1- Exhibit 1.26, 1.27 and 1.28 Integrative Case 1.1(Chapter 1) present the financial statements for Walmart for 2012 to 2015. In addition, the website for this text contains Walmarts December 31, 2015, Form 10-K. You should read the management discussion and analysis (MD&A), financial statements, and notes to the financial statements, especially Note 2, Summary of Significant Accounting Policies.
Required
Given your knowledge of Walmarts key success and risk factors, use the note information described above to evaluate Walmarts accounting quality.
If you believe that Walmarts accounting policy does not yield measurements of assets and liabilities that reflect economic reality and a measurement of net income that is predictive of future earnings, suggest any changes that you would make to assets, liabilities, and earnings to improve accounting quality. (At this point in your learning process, if you do not have specific numerical adjustments to propose, at least describe potential journal entries you would make to change the financial statements, if any, and what information you might need to make those entries.)
Evaluate whether your proposed adjustments are necessary for (1) credit analysis and (2) equity valuation.
6.2- Submit a proposed solution to Case 6.2 – Citi: A Very Bad Year to this assignment submission folder.
Required
Consider the following items reported in Citis Consolidated Statement of Income:
Principal transactions
Realized (gain) losses from sales of investments
Provision for loan losses
Restructuring
Other operating expenses (which presumably includes the goodwill impairment)
Discontinued operations
Discuss whether you would eliminate all or part of each item when assessing current profitability and forecasting the future earnings of Citi. If so, what adjustments would you make to the financial statements (assuming a tax rate of 35%)?
6.3 – Submit a proposed solution to Case 6.3 – Arbortech: Apocalypse Now to this assignment submission folder.
Required
Using information in the financial statements as originally reported in Exhibits 6.23, 6.24 and 6.25, compute the value of Beneishs Manipulation Index for fiscal Year 5 and Year 6.
Using information from Requirement a and the financial ratios in Exhibit 6.26, indicate possible signals that Arbortech might have been manipulating its financial statements.
Describe the effect of each of the eight accounting irregularities on the balance sheet, income statement, and statement of cash flows.
Using information in the restated financial statements in Exhibits 6.27, 6.28 and 6.29, the financial ratios in Exhibit 6.30, and the information provided in this case, as a commercial banker, would you be willing to offer Arbortech a line of credit as of July 31, Year 7? If so, provide the conditions that would induce you to offer such a line of credit.
Exhibit 6.31 presents the values of Altmans Z-score for fiscal Year 4, Year 5, and Year 6 based on the originally reported amounts and the restated amounts. Compute the value of Altmans Z-score for the fiscal year ended March 31, Year 7. Although this is not technically correct, use the income amounts for the nine-month period ending March 31, Year 7. Based on the amounts in the proposed settlement of the class-action lawsuits, the value of the common equity on March 31, Year 7, is $50,068,568.
Can Arbortech avoid bankruptcy as of mid-Year 7? Explain. Why doesnt the Altman model signal the financial difficulties earlier?
