ACIS 5104-Fundamentals of Accounting

Case Assignment II, Fall 2018

Instructor: Sudip Bhattacharjee

Objectives:

 To examine issues around accounts receivable disclosures.

 To develop the skills required for analyzing financial statements.

Instructions:

 This is a graded homework assignment. You can use your book and notes to complete this assignment. However, please work on the case individually.

 Please read the attached case information carefully and answer all questions below. Please write concisely and clearly, using your best composition skills (type all your

responses).

 This assignment is due on November 26, 2018. Please use the Assignments function in Canvas to submit your assignment prior to class on the due date.

Requirements

a. Based on the financial information provided on the next page, what is Leggett & Platt,

Inc.’s gross amount of receivables at the end of 2016 and 2015?

b. Compute the common-size amount for gross accounts receivable, for both years (to

common-size a balance sheet item, it is expressed as a percentage of total assets).

Interpret the year-over-year change in this ratio.

c. Compute the allowance for doubtful accounts to gross accounts receivable, for both

years. Interpret the year-over-year change in this ratio.

d. Based on the ratios you calculated, form an opinion about the quality of the company’s

accounts receivable.

e. How can companies use accounts receivables to shift income between financial

accounting periods? Explain why managers engage in this sort of activity. Discuss how

companies would justify such income shifting choices to the external auditor.

Leggett & Platt, Inc. reported net sales of $3,749.9 million in 2016 and $3,917.2 million in 2015. The asset side of the balance sheet follows. Use this information to answer the required.

LEGGETT & PLATT, INCORPORATED Consolidated Balance Sheets (excerpts)

(in millions) Dec. 31, 2016 Dec. 31, 2015

Current Assets

Cash and cash equivalents $281.9 $ 253.2

Trade receivables, net of allowance $7.2 and $9.3, at December 31, 2016 and 2015, respectively 450.8 448.7

Other receivables, net 35.8 71.5

Total receivables, net 486.6 520.2

Inventories

Finished goods 255.7 242.8

Work in process 52.6 42.6

Raw materials and supplies 245.1 241.8

LIFO reserve (33.8) (22.6)

Total inventories, net 519.6 504.6

Prepaid expenses and other current assets 36.8 33.2

Total current assets 1,324.9 1,311.2

Property, plant and equipment – at cost

Machinery and equipment 1,133.8 1,099.1

Buildings and other 559.4 548.2

Land 37.7 40.0

Total property, plant and equipment 1,730.9 1,687.3

Less accumulated depreciation (1,165.4) (1,146.5)

Net property, plant and equipment 565.5 540.8

Other Assets

Goodwill 791.3 806.1

Other intangibles, less accumulated amortization of $137.0 and $139.8 at December 31, 2016 and 2015, respectively 164.9 188.4

Sundry 137.5 117.2

Total other assets 1,093.7 1,111.7

Total assets $2,984.1 $2,963.7

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