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Complete the following exercises in Understanding Financial Statements: Case 1.1, Problem 2.19, and Case 2.1. Case 1.1 Intel Case The 2010 Intel Annual Report can be found at the following Web site. www.pearsonhighered.com/fraser. Using the annual report, answer the following questions: a. Describe the type of business in which Intel operates.
The types business that Intel operates is that they sell devices like processors for PCs and internet servers. They also design and manufacture these devices but are optimistic to expand and cover complete hardware and software merchandises and not only the devices to upkeep equipment for others.
b. Read the letters from CEO and the chairman and discuss any information learned from this letter that might be useful to an analyst. The president’s statement about Intel of how they will go into new markets seems significant as it indicates a new route to increase customers however also increase competition. Stream of traffic crossing the web in 2010 was larger than in all prior years collectively. That is very surprising and the degree of development is quite remarkable to stakeholders and analysts. Intel is the prime consumer of green power in the U.S. An analyst may perhaps or not observe that this probable indicates that Intel is an enormous power customer and therefore if an analyst considers that power prices will raise, it will affect Intel.
c. What type of audit opinion was given for the financial statements and the internal financial controls of Intel? Explain the key items discussed in the audit reports. The audit opinion was “clean” meaning no exceptions. That is, the financial reports are equally itemized in accordance with GAAP and the systems of controls surrounding the financial reporting are working as designed.
d. Read the management Discussion and analysis MD&A). Discuss whether the items that should be addressed in the MD&A are included. Support your answer with examples from the Intel MD&A. Yes, the MD&A has the main parts needed. The MD&A comprises a synopsis of the financial results, dialogue about strategy, critical accounting estimates, investments, taxes, inventory, accounting changes, results of operations by segment and margins, and restructuring charges. The discussion contains the business outlook, the use of fair values, but I didn’t discover the section on business risk. I did not locate it after checking to see it.
e. After reading the MD&A, discuss the future prospects of Intel. Do you have any concern? If so, describe those concerns. The projections look very decent. They have firm outcomes and a strategy that makes clear logic given the market. The thing I don’t know about and would be concerned about is the competition. My biggest concern is; what if Microsoft wants to make devices? Intel is equally reliant on computer creators currently. External dangers are not deliberated that much because Intel cannot control it or recognize too much about it. The discussion is more about internal actions and back-ward looking financial outcomes. Case 2.1 Intel Case
The 2010 Intel Annual Report can be found at the following Web site. www.pearsonhighered.com/fraser. Using the annual report, answer the following questions: Prepare a common-size balance sheet for Intel for all years presented.
a. Describe the types of assets Intel owns. Which assets are the most significant to the company? Using the notes to the financial statements, discuss the accounting methods used to value assets. What other information can be learned about the asset accounts from the notes? Have there been significant changes to the asset structure from 2009 to 2010? They possess cash, investments, receivables, inventory, long-lived assets and goodwill.
Approximately a third of the assets are property, plant and equipment (PPE). The PPE is depreciated using straight line method over 2 to 4 years for machinery and equipment and 4 to 40 years for buildings. They get the most out of interest in long-lived assets they build themselves. Per footnote within the chapter, many of the short and long-term investments are valued at their fair values. There is wide data about valuations and whether the revaluations are recurring or nonrecurring. There have not been broad changes in benefit structure. The only immense modification is in short term investments (please see excel spreadsheet).
b. Analyze the accounts receivable and allowance accounts.
c. Describe the types of liabilities Intel has incurred. Which liabilities are the most significant to the company? Have there been significant changes to the liability and equity structure from 2009 to 2010?
The most substantial debt is vendor accruals (AP and accrued items) and long term debt. There has not been a key change from 2009 to 2010 (please see excel spreadsheet). Equity is greater since they distributed some common stock and had earnings (increased RE). d. Describe the commitments and contingencies of Intel.
Please note 29 on contingencies describe a number of legal proceedings for which the outcome is uncertain. e. Under which classification(s) are deferred taxes listed? What item is the most significant component of deferred taxes?
As mentioned in Note 28, deferred taxes are list below present assets,
noncurrent assets, and noncurrent liabilities. Share-based compensation is the biggest component of deferred taxes. f. What equity accounts are included on the balance sheet of Intel? Preferred stock, common stock, other comprehensive income and retained earnings. 2.19. From the following accounts, prepare a balance sheet for Chester Co. for the current calendar year. Chester Co.