Friday, June 3, 2016

Accounting - WINN-DIXIE STORES case study solution


WINN-DIXIE STORES, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION AS OF FEBRUARY 21, 2005 case solution
Part I

Q1. What is the total amount owed to Winn-Dixie from its "trade and other
receivables" as of the end of fiscal 2006?

net Accounts Receivables + ending Allowance

= 152,237 + 9537 = 161,774

Q2.

What amount does Winn-Dixie expect to collect from its "trade and other
receivables" as of the end of fiscal 2006?
152,237 = net Accounts Receivables

Q3.
What was Winn-Dixie's bad debt expense (i.e., estimated provision for bad debt)
for fiscal 2006?

13,340 see Schedule II

Q4.

What was the amount of "trade and other receivables" which Winn-Dixie wrote off
in fiscal 2006?

14,471 see Schedule II

Q5.
Would Winn-Dixie’s fiscal year 2006 after-tax net income have been greater or
less if it had always used the direct write-off method instead of the allowance
method for its “trade and other receivables”?

less – the amount written off exceeded the bad debt expense

Q6.
How much greater or less would Winn-Dixie's fiscal 2006 before-tax income have
been had it always used the direct write-off method instead of the allowance
method for its "trade and other receivables"?

14,471 – 13,340 = 1131


Q7.
Would Winn-Dixie’s fiscal year 2006 ending retained earnings have been greater
or less if it had always used the direct write-off method instead of the
allowance method for its “trade and other receivables”?

Greater – expense associated with defaults are recognized later under direct write-off
method. Retained earnings would be greater by 9,537 (ignoring taxes which we will discuss next week).

Q8.
Assuming that net sales is net of bad debt expense only and that Winn-Dixie uses
the percentage of sales method to determine its bad debt expense, what
percentage rate did Winn-Dixie use to record its bad debt expense for fiscal
2006?

BDE             
Net Sales + BDE

=13,340 / (7,193,853 + 13,340 ) = .00185

Q9.
What percentage of Winn-Dixie's total merchandise inventory at the end of fiscal
2006 is its manufacturing, pharmacy, produce and deli inventories?

17 see Note 3

Q10.
What could be the primary reason for Winn-Dixie to account for the majority of
its inventory using the LIFO method rather than any other inventory method?

To decrease tax payments

Q11.
What would the balance in the inventory account have been at the end of fiscal
2006 if Winn-Dixie had always used FIFO for all of its inventories?

reported inventory + Ending LIFO Reserve

= 477,885 + 152,729 = 630,614

Q12.
Was Winn-Dixie’s fiscal 2006 pre-tax income greater or less as a result of using
LIFO rather than FIFO for some of its inventories?

greater – because the LIFO Reserve decreased.



Q13.
How much more (or less) pre-tax income did Winn-Dixie report in fiscal 2006
because it used LIFO rather than FIFO for some of its inventories?

Change in the LIFO Reserve = 193,001 – 152,729 (see Balance Sheet)
= 40,272

Q14.
Was Winn-Dixie’s fiscal 2006 ending retained earnings greater or less as a
result of using LIFO rather than FIFO for some of its inventories?
greater

Less – LIFO reserve implies cumulative CoGS has been higher under LIFO – higher CoGS, lower RE.

Q15.
How much greater (or less) was Winn-Dixie's end of fiscal 2006 retained earnings
because it used LIFO rather than FIFO for some of its inventories? Assume that
Winn-Dixie's tax rate is 35%.

Ending LIFO Reserve x (1 – tax rate)
= 152,729 x .65 = 99,274 LESS

Q16.
What would Winn-Dixie's fiscal 2006 cost of sales have been if it had not had to
liquidate some of its LIFO layers? Assume that Winn-Dixie’s tax rate is 35%.

If you assume that the net LIFO liquidation benefit referred to in Note 4 was pretax:

reported cost of sales + LIFO liquidation benefit

=5,367,707      = 5,327,407 + 40,300

If you assume that the net LIFO liquidation benefit referred to in Note 4 was aftertax:

reported cost of sales + LIFO liquidation benefit

=5,389,407      = 5,327,407 + 40,300/(1-.35)




Part II
Q17.
How much cash did Nordstrom spend in fiscal 2006 to acquire new land, buildings
and equipment?

264,437 see the Investing Section of the SCF

Q18.
How much in cash did Nordstrom receive from the sale of land, buildings and
equipment during fiscal 2006?

224 see the Investing Section of the SCF

Q19.
How much in land, buildings and equipment was written down in fiscal 2006?

10 see Item 6

Q20.
What was the total amount of depreciation and amortization on land, buildings
and equipment recognized by Nordstrom in fiscal 2006?

284,520 see Operating Section of the SCF

Q21.
What was the original cost of the land, buildings and equipment sold by
Nordstrom during fiscal 2006?

Land, Building and Equipment – Historical Cost
4,323,430 BB
Purchases          264,437                                 10 writedowns
           40,527 disposals (plug)
                       4,547,330 EB

Note: You can alternatively show the write-down as in increase in Accumulated Depreciation – one or the other is acceptable – but clearly not both.

Q22.
What was the amount of the accumulated depreciation and amortization associated
with land, buildings and equipment sold by Nordstrom during fiscal 2006?




Land, Building and Equipment – Accumulated Depreciation
                BB 2,540,559
Disposals (plug) 34,964                                             284,520 depreciation and amortization
   EB 2,790,115


See Q21 – including the impairment here (not shown) is acceptable as well – which would alter your disposal plug here to 34,974.

Q23.
Did the sale of land, buildings and equipment in fiscal 2006 result in a gain or
loss?

Loss: Proceeds (224) < NBV (40,527 – 34,964 = 5563) See Disposal Plugs above

Q24
What was the gain or loss associated with the sale of the land, buildings and
equipment by Nordstrom during fiscal 2006?

5,339 – see above

Q25
For this question assume that the land, buildings and equipment sold by
Nordstrom during fiscal 2006 was furniture purchased on January 1, 2000. In
addition, assume that the furniture was sold on June 30, 2006. What was the
average useful life assumed for depreciation purposes of the furniture sold?


actual years of service             =      depreciation incurred over actual years of service
x = assumed useful life                        total amount to be depreciated(i.e. Hist. Cost)

6.5 (June 2006-Jan 2000)                   =34,964)(Acc.Depn at Disposal)
x                                                            40,527

x=7.5

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