Income Statement And Revenue Recognition

1) Did your company WALMART report or release EBITDA (earnings before interest taxes depreciation and amortization)? What income or expenses items were adjusted from net income to reconcile to EBITDA figures? (HINT: You may need to find the earnings press release correlating to the annual financial report). 2) Did your companys net income increase or decrease from the prior period? Identify the major reasons for the increase or decrease. 3) Imagine that you are a financial analyst for your company asked to generate a forecast of your companys net income for the future period. You know that generally the best place to start in forecasting next years net income is this years net income. Given this starting point look at the items in your companys recent period financial statements and make a forecast of the next periods income. 4) What was your companys comprehensive income for the recent period? 5) Locate your companys note on revenue recognition. What is the revenue recognition policy? What FASB Codification is being followed? 6) Did you companys revenue increase or decrease from the prior period? Identify the major reason for the increase or decrease. DISCUSSION: Far from being an exact science accounting involves estimation and judgment. Consider the case of Nelson Palmer chief financial officer of Jasper Enterprises. Jasper is a relatively young privately held company with thoughts of going public in the near future. The owners of the business would like to include in the prospectus (a document containing information about the company and its past performance) financial statements that support their assertion that Jasper is a successful company with a bright future. The problem is the income statement for the past year shows a slight decrease in income from the prior period. When Nelson presented this information to the board of directors he was told to revise the income statement. He was specifically counseled to review his estimates associated with bad debt expense warranty expense and estimated useful life of depreciable assets. He was invited to present his revised income statement to the board when it showed a 5% increase over last periods net income “ anything less would not do. After reviewing the assumptions made regarding uncollectibles warranties and depreciation Nelson found that he could revise his estimates and obtain the 5% target increase in income. But he did not feel that the revised income statement properly reflected the performance of Jasper for the period. 1. What are the risks to Nelson of revising the income statement to meet the target? 2. What are the risks to Nelson of not revising the income statement?

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