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Nike 10K Form Analysis - Intermediate Financial Accounting I

-What items on the balance sheet would be recognized at historical cost?

-Which of the items listed using historical cost could potentially be the most undervalued? Would any of the items possibly be overvalued under historical cost?

-Do the notes to the financial statements disclose fair market values on these items identified? Why? Justify your answer.

-What is the amount of total assets on the balance sheet? Did this balance seem high, low, or just about right to you? Why?

-What is the amount of total current liabilities on the balance sheet? What determines if an item is listed as current?

-Do you feel that the notes to the financial statements are adequate in regard to disclosing areas that need further clarification? Why?

-Does Nike, Inc. address inventory reserves? If so what is their policy related to this? Do you agree with this? Why?

-Does Nike, Inc. use the retail inventory method and if so, what version do they use? If not why?

-What is included in property, plant, and equipment? Are there any special rules related to valuation of this group of assets?

-Which asset under property, plant, and equipment makes up the largest portion of the balance? Which asset makes up the smallest portion of the balance?

-Do you think that there should be more detail on the face of the balance sheet on the property, plant, and equipment account such as showing the different asset accounts? What would be the value of doing this?

-Are there any gains or losses included in the income statement balance? If so what are the details? If not why do you think they are not included?

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-What items on the balance sheet would be recognized at historical cost?

The current assets and current liabilities are always recognized at historical cost. The only time fair market value is used is when it concerns a trading security. The short-term investments are recognized at fair value on the balance sheet, as we can see when we look at pg. 52. Notes payable and long term debt also make provisions for FMV. This is Nike's policy -- some companies do this and others don't. The other items on a balance sheet wouldn't be carried at FV.

-Which of the items listed using historical cost could potentially be the most undervalued? Would any of the items possibly be overvalued under historical cost?

Goodwill would be the most undervalued asset, and especially for a company like Nike. The reason is because goodwill includes factors like company reputation, customer relationships, and other such factors. We try to attach a value to goodwill and the bigger the company, the more undervalued the chances are that it is undervalued. Physical assets are almost always overvalued. This would consist primarily of property, plant, and equipment. The reason is because machines lose value quickly depending on how much they're used, and in the case of manufacturing, we can assume they're used quite heavily.

-Do the notes to the financial statements disclose fair market values on these items identified? Why? Justify your answer.

The notes describe how the company adjusts for FMV to goodwill, which is normal with any company. We see on pg. 57 a description of how goodwill is valued and how it is adjusted to carrying value. We see on pg. 42 how property, plant and equipment are adjusted for impairments, which would be based on depreciable cost left and fair market value.

-What is the amount of total assets on the balance sheet? Did this ...

Solution Summary

Nike 10K Form Analysis - Intermediate Financial Accounting I

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