CP4-2 Finding Financial Information LO4-2, 4-3, 4-4 Refer to the financial state

ID: 2653472 • Letter: C

Question

CP4-2 Finding Financial Information LO4-2, 4-3, 4-4 Refer to the financial statements of Urban Outfitters in Appendix C at the end of this book. Required: 1. How much is in the Prepaid Expenses and Other Current Assets account at the end of the most recent year (for the year ended January 31, 2012)? (in thousands) Where did you find this information? 2. What did the company report for Deferred Rent and Other Liabilities at the end of the most recent year (for the year ended January 31, 2012)? (in thousands) Where did you find this information? 3. What is the difference between prepaid rent and deferred rent? 4. Describe in general terms what accrued liabilities are. 5. What would generate the interest income that is reported on the income statement? 6. What company accounts would not have balances on a post-closing trial balance? 7. Describe the closing entry, if any, for Prepaid Expenses. 8. What is the company's earnings per share (basic only) for the three years reported? Year Ended: EPS: January 31, 2012 January 31, 2011 January 31, 2010 9. Compute the company's total asset turnover ratio for the three years reported. (Dollars in thousands.) Fiscal Year Ended Sales Revenue / Average Total Assets = Total Asset Turnover 1/31/2012 1/31/2011 1/31/2010 What does the trend suggest to you about Urban Outfitters? CP4-2 Finding Financial Information LO4-2, 4-3, 4-4 Refer to the financial statements of Urban Outfitters in Appendix C at the end of this book. Required: 1. How much is in the Prepaid Expenses and Other Current Assets account at the end of the most recent year (for the year ended January 31, 2012)? (in thousands) Where did you find this information? 2. What did the company report for Deferred Rent and Other Liabilities at the end of the most recent year (for the year ended January 31, 2012)? (in thousands) Where did you find this information? 3. What is the difference between prepaid rent and deferred rent? 4. Describe in general terms what accrued liabilities are. 5. What would generate the interest income that is reported on the income statement? 6. What company accounts would not have balances on a post-closing trial balance? 7. Describe the closing entry, if any, for Prepaid Expenses. 8. What is the company's earnings per share (basic only) for the three years reported? Year Ended: EPS: January 31, 2012 January 31, 2011 January 31, 2010 9. Compute the company's total asset turnover ratio for the three years reported. (Dollars in thousands.) Fiscal Year Ended Sales Revenue / Average Total Assets = Total Asset Turnover 1/31/2012 1/31/2011 1/31/2010 What does the trend suggest to you about Urban Outfitters?

Explanation / Answer

(‘3)

Deferred Expense and Prepaid Expense- Deferred expense and prepaid expense is costs which have been already incurred but the benefits are yet to consumed. The cost incurred will be recorded as asset until the underlying services are goods are consumed. The point when the benefits of services or goods consumed the cost is charged to expense by crediting the deferred expense or prepaid account. Thus both represent advance payments for goods and services.

Deferred Expense

Prepaid Expense

(‘1) It indicates that a payment was made more than one year before the cost is expensed.

(‘1) It indicates that a payment was made less than one year before the cost is expensed

(‘2) Shown as noncurrent asset in balance sheet.

(‘2) Shown as current asset in balance sheet.

(‘3) Benefit of cost incurred will be received after one year of payment made.

(‘3) Benefit of cost incurred will be received within one year of payment made.

Thus if advance payment of rent on balance sheet date related with period over and above one year, the same will be classified as deferred rent in balance sheet as long-term asset. In the given case rent pertaining to period after Jan , 31, 2013 will be deferred rent.

Advance payment of rent on balance sheet date related with period comes within one year; the same will be classified prepaid rent in balance sheet as current asset. In the given case rent pertaining to period after Jan , 31, 2012 to Jan 31,2013 will be prepaid rent.

(‘4) Accrued Liability-

As per GAAP we have to follow accrual basis of accounting. In accrual basis expense is recorded as per accrual concept. Accrued expenses are expenses that have been incurred but not yet paid.

Therefore an accrued liability is an obligation which has been assumed, in the absence of confirming documents such as invoice. These are credited against expenses account or accrued expenses account.

In the balance sheet accrued liabilities are shown under current liability section.

(‘5) Interest Income - Interest income is the income received or receivable as interest on investment made by the company. It is a non-operating income for the companies other than investment companies. It will increase total income of the company which will result increase in net income.

(‘6) Closing of Trial Balance-

Post-closing trial balance is a list of all permanent accounts containing non zero balance at the end of reporting period. All accounts are appearing in post- closing trial balance are part of balance sheet.

All temporary accounts which includes revenue, expense, gain and loss and summary accounts have already been closed and their balance moved into retained earnings account as part of closing entries , hence these accounts will not appear in post-closing trial balance.

(‘7) Closing Entry for Prepaid Expense –

Adjustment entries for prepaid expense

Initially recorded as asset

Initially recorded as expense

Initial Entry

Debit the prepaid expense

Credit the cash

Debit the expense

Credit the cash

Adjustment Entry

Debit the expense account

Credit the prepaid expense account

( with proper amount of expense related with reporting period)

Adjustment Entry

Debit the prepaid expense account

Credit the expense account

( with proper amount of expense related with period pertain after reporting period)

Therefore adjustment entries of prepaid expenses are passed before closing the trial balance.

Prepaid expense appearing in post-closing trial balance will be shown in balance sheet.

Therefore no closing entry will be passed for prepaid expenses appearing in trial balance if above adjustment entries have been passed.

Note-

(‘1) Please note financial information required to solve the question number 1, 2, 8 and 9.

(‘2) You may get this information in any websites which disclosed the financial results of companies like Bloomberg.com link for the same as under.

http://www.bloomberg.com