The following information was taken from recent annual reports of the GOODYEAR TIRE RUBBER, and PPL ENERGY CO, a public utility.
|Net Sales||19.6 billion||5.1 billion|
|Average Acct Receivable||3.1 billion||376 million|
- Compute for each company the accounts receivable turnover rate for the year.
- Compute for each company the average number of days required to collect outstanding receivables. ( round to nearest whole day0
- Explain why the figures computed for Good Year in parts a. and b. Are so different then those computed for PPL.
A lot of companies have a large portion of financial assets in the form of marketable securities, Microsoft is an example. Microsoft recently reported they had 14.5 billion in marketable securities which is equal to 38% of its total financial assets. In contract only 24% of assets were in the form of accounts receivable.
a.) Define marketable securities (also referred to a short term investments). What characteristics of these securities justify classifying them as financial assets.
b.) What is the advantage of Microsoft keeping financial assets in the form of marketable securities instead of cash? Is there a disadvantage?
c.) Explain how Microsoft values these investments on its balance sheet.
d.) Discuss whether the valuation of marketable securities represents a departure form the cost principle and the objectivity principle.
e.) Explain hoe to mark-to-market benefits the users of Microsoft’s financial statements.