Carnival Cruise Anaysis

Q6-1 By increasing or decreasing the allowance for doubtful accounts mgt can increase current period income by deliberately underestimating bad debt expense this will also reduce future period income thus shifting income form the future period to the current period. Or vice versa mgt could overestimate the current periods bad debt expense......cookie jar reserves or a big bath.

Q6-2 It reduces the effects of choosing FIFO and LIFO have on COGS and Net Income on the IS and Inventories balances on BS

Q6-4 a) LIFO b)LIFO c)FIFO d)FIFO e)LIFO

Q6-6 Lower of Cost or Market Principle rational is that inventory should be carried at current replacement cost to provide a more accurate reflection of the inventory value. Prevents the overstatement of inventory.Conservatism.

E6-28

a) $12,834

b) $13,457

c) Decreased pretax income by 2007 $623 + 2006 $564

d) decreased pretax income for 2007 by $623 and tax expense by $218.05

e) 59 * .35 =20.65

E6-35

a) 6664/402=16.6 years

b) 4271/6664=.64 or 64.1% Deere is replacing its assets less than evenly each year thus its assets are becoming older over time at this rate. Expect higher maintenance costs in the future and replacement costs.

E6-36

Accounts recievable turnover =Sales/Average accounts receivable, gross

2006=35382/(3924+2709/2)=10.66

2007=38334/(2576+2709/2)=14.5

Inventory turnover=Cost of Goods Sold /average inventory

2006=17164/(3126+4314/2)=4.6

2007=18430/(3370+4314/2)=4.8

PPE turnover=Sales/Average PPE assets,net

2006=35382/(17602+17111/2)=2.03

2007=38334/(16918+17602/2)=2.22

The ratios improved for all three categories for 2007 vs 2006 meaning Intels a/r could have experience improved collectibility i.e shorter paying customers, intels products must be salable, it could mean the product mix changed with faster turning inventories being sold or they could have increased advertising or could be improvements in manufacturing efficiencies. Higher PPE turnover implies a lower capital investment

For a given level of sales i.e. avoiding asset carrying costs and freeing assets to generate a return.

E6-37

a) 225,000-25,000/10yr useful life=20,000 per yr.

b) NBV=225000-80000=145000

c) Yes its