What is the purpose of accounting adjustments

Reference no: EM13968552

Answer the following questions:

• What is the purpose of accounting adjustments?

• Name and define the four types of account adjustments and give an example of each.

1.Formulating Financial Statements from Raw Data

Following is selected financial information from Abercrombie & Fitch, for its fiscal year ended February 2, 2008 ($ millions):

Revenue	$ 3,749.8
Cash from operating activities	817.8
Cash, beginning year	82.0
Stockholders' equity	1,618.3
Noncash assets	2,449.6
Cash from financing activities*	(281.6)
Cost of goods sold	1,238.5
Total expenses (other than cost of goods sold)	2,035.6
Cash, ending year	118.0
Total liabilities	949.3
Cash from investing activities	(500.2)

*Cash from financing activities includes the effects of foreign exchange rate fluctuations.

(a) Prepare the income statement, the balance sheet, and the statement of cash flows for Abercrombie & Fitch for the fiscal year ended February 2008.

(b) Using the statements prepared for part a. compute the following ratios (for this part only, use the year-end balance instead of the average for assets and stockholders' equity):

(i) Profit margin (Round your answer to two decimal places.)
Answer %

(ii) Asset turnover (Round your answer to two decimal places.)
Answer

(iii) Return on assets (Round your answer to two decimal places.)
Answer %

(iv) Return on equity (Round your answer to one decimal place.)

2.Comparing Abercrombie & Fitch and TJX Companies

Following are selected financial statement data from Abercrombie & Fitch (ANF-upscale clothing retailer) and TJX Companies (TJX-value-priced clothing retailer including TJ Maxx) -- both dated the end of January 2009 or 2008.

($ millions)	Company	Total Assets	Net Income	Sales
2008	TJX Companies Inc.	$6,600
2009	TJX Companies Inc.	6,178	$ 881	$19,000
2008	Abercrombie & Fitch	2,568
2009	Abercrombie & Fitch	2,848	272	3,540

(a) Compute the return on assets for both companies for the year ended January 2009. (Round your answers to one decimal place.)
TJX 2009 ROA = Answer __%
ANF 2009 ROA =Answer __%

(b) Disaggregate the ROAs for both companies into the profit margin and asset turnover.

TJX 2009 Profit Margin =Answer % (Round your answer to one decimal place.)
ANF 2009 Profit Margin =Answer % (Round your answer to one decimal place.)
TJX 2009 Asset Turnover =Answer (Round your answer to two decimal places.)
ANF 2009 Asset Turnover =Answer (Round your answer to two decimal places.)

ANF turns its assets much faster than TJX and this is the primary reason for its higher return on assets.
ANF is realizing a higher return on assets as a result of its lower investment in assets.
ANF's higher profit margin results from premium prices on its clothing. TJX's value-pricing business model relies on higher turnover of clothing with lower margins. TJX's turnover rate is more than twice as much as ANF's, resulting in a ROA for TJX that is higher than ANF's.
ANF's higher return on assets is the result of its greater level of sales.

Reference no: EM13968552

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