III. Assignment
Requirements

The
financial statements from Kohl’s Corporation 2012 Annual Report (for the
fiscal- year ended February 2, 2013)
will be the base for the majority of the questions. I have extracted
the four financial statements, the auditor’s report, and some of the Notes from
its 10-K filing and you can find
this Word doc in Content in D2L (you may print out this document is you desire to work off of a hard copy).

·
You will also be asked to do
some comparisons between Kohl’s and Home Depot.
Both companies are retailers, thus doing cross-sectional ratio analysis
should be at least somewhat appropriate (i.e. some product lines are similar, though
most are somewhat different). You are
also given some other questions about the audit report and the “notes” to the
financial statements

The following is known with respect to Home Depot for fiscal 2012 (or
at its fiscal 2012 year-end, February 3,
2013 => basically the same fiscal year-end as Kohl’s)

Home
Depot’s closing stock price at February 3, 2013 =
$67.30
dividend yield ratio = 1.7%
dividend payout ratio = 38.3%
Current ratio = 1.3
Debt-to-asset ratio = 56.7%
Gross profit % = 34.6%
Net profit margin = 6.1%
Days to sell (days in inventory) = 78 days

Kohl’s closing stock price at January 28, 2012 = $46.38
Kohl’s closing stock price at February 2,
2013= $49.85
Kohl’s fiscal 2012 dividend = $1.28/share
[Kohl’s paid it first dividend ever in the 1st quarter of fiscal
2011 at $.25 per share and increased the quarterly dividend to $.32 in the
first quarter of fiscal 2012 (and then to $.35 per share per quarter in the
first quarter of fiscal 2013)

Required
Select the most appropriate answer to each
of the 19 following questions. Submit
your answers to CengageNow under Unit #3 – Financial Statement Analysis. Please read the post-submission feedback when
given as you will be tested on this material on the Final Exam.

1. Which
one of the following items did the “independent registered public accounting firm” (i.e. the auditor’s) find problems
with when performing its audit of Kohl’s?

A. there was a material misstatement in the
financial statements
B. certain amounts in the financial
statements were prepared on a basis other than GAAP
C. Kohl’s system of internal controls
D. none of the above, as everything was
fine

2. Kohl’s
stock symbol is “KSS” (i.e. three letters), therefore it is likely that Kohl’s
stock is listed on which one of the
following exchanges? [note: if you so
desire go to the Yahoo, Google, or
similar financial page and enter the symbol “KSS” in the “stock quote” dialog box and press enter to
find out what exchange Kohl’s stock is listed on. This
topic was also covered in the Unit #1 Notes.]

A. New York Stock Exchange
B. NASDAQ
C. one of the “over-the-counter” exchanges
D. the Chicago Board of Trade (CBOT)

3. Compute
Kohl’s “dividend yield” ratio as of February 2, 2013 (i.e. at the last day of
fiscal 2012).

A. 2.2% B. .06% C. 2.6% D. 22.0%

4. What
happened to Kohl’s dividend yield from January 28, 2012 (the last day of fiscal
2011) to February 2, 2013 (the last
day of fiscal 2012)?

A. it increased
B. it declined
C. it basically remained constant
D. the effect cannot be determined from the
information given

5. How
should/would the change in the dividend yield ratio from January 28, 2012 (the
last day of fiscal 2011) to
February 2, 2013 (the last day of fiscal 2012) generally be viewed by investors?

A. positively
B. negatively

6. Calculate
Kohl’s dividend payout ratio for fiscal 2012 (i.e. for the year ended
February 2, 2013). Use the Net
Income listed in the middle of the incomestatement.

A. 2.6% B. 30.5% C. 23.1% D. 29.6%

7. Which
one of the following is correct (true) with respect to Kohl’s dividend?

A. Cash dividends of $300,0000,000 paid to
investors in 2012 were included under “Cash Flows from Investing
Activities” on the Statement of Cash Flows
B. Cash Dividends paid reduces the Common
Stock account on the Statement of Shareholders’ Equity.
C. The total amount of dividends paid increased
from 2011 to 2012.
D. The ending balance in the retained
earnings account must have decreased from January 28, 2012 (the last day of
fiscal 2011) to February 2, 2013 (the last day of fiscal 2012) because dividends where paid.

8. Which one of the
following is correct with respect to Kohl’s .vs. Home Depot for fiscal 2012?
You are saying the Kohl’s is better or worse then Home Depot on these two
percentages.

Kohl’s .vs.
Home Depot
Gross
profit margin %

Kohl’s .vs.
Home Depot
Net
profit margin %

A.

Better

Worse

B

Worse

Better

C.

Worse

Worse

D.

Better

Better

9. Which one of the
following would cause a company (Company A) to have a lower gross profit margin
% but a larger net profit margin % than another (second) company (Company B)?
Answer this from Kohl’s income statement. Remember what is included in net
income.

A. Company A had a lower % for operating
expenses than did Company B
B. Company B had significant “non-operating
expenses” or a loss which was not present for Company A.
C. Company A had significant “non-operating
income” or a gain which was not present for Company B.
D. A, B and C are correct

10. Which
one of the following is correct with respect to Kohl’s .vs. Home Depot at
fiscal year-end 2012 (i.e. at
February 2, 2013)?

Kohl’s .vs.
Home Depot
Current
ratio

Kohl’s .vs.
Home Depot
Debt-to-asset
ratio

A.

Better

Worse

B

Worse

Better

C.

Better

Better

D.

Worse

Worse

11. Refer to the
comparative balance sheets for Kohl’s.
Which one of the following is the “simplified” adjusting journal entry
(AJE) that could have been made for the change in the accrued liabilities
balance?

Debit

Credit

A.

Cash

161

Accrued Liabilities

161

B.

A/P

161

Accrued Liabilities

161

C.

Accrued Liabilities

161

Cash

161

D.

Expenses

161

Accrued Liabilities

161

12. What
effect did the AJE that was made for question #11 with respect to the increase
in current liabilities have on the
current ratio of Kohl’s at its February 2, 2013 (fiscal 2012) year-end?
(Round to three decimal places before comparing the ratios.)

A. improved it
B. made it worse
C. left it unchanged
D. not enough information is given to
determine the effect

13. How
would the change in cash from January 28, 2012 to February 2, 2013 generally be
viewed? [careful! => refer to the
statement of cash flows]

A. favorably B. unfavorably

14. What impact did
Kohl’s buyback of 27 million shares of its own common stock (i.e. treasury
stock) for $1,269 (per the statement of shareholders’ equity) in fiscal 2012
have on the following? Because the income decreased, it is hard to determine if
the purchase of treasury stock had an effect on the income. Assume that the net
income is the same for both years; everything else is constant except that
treasury stock was purchased.

EPS

Return on
Equity

A.

Improved

Worsened

B

Worsened

Improved

C.

Improved

Improved

D.

Worsened

Worsened

Following is a “Note” to the financial
statements taken from the Kohl’s 2012 Annual Report:
Accrued Liabilities
Accrued liabilities consist of the following:

Feb 2,
2013

Jan 28,
2012

(In Millions)

Various
liabilities to customers

$

275

$

302

Payroll and
related fringe benefits

101

202

Sales, property
and use taxes

153

166

Accrued
construction costs

65

105

Credit card
liabilities

120

79

Other

272

293

$

986

$

1,147

The
various liabilities to customers include gift cards and merchandise return
cards that have been issued but not presented for redemption.
We have corrected the presentation of $17
million of deferred revenues that were previously recorded as a reduction to
merchandise inventory as of January 28, 2012.

15. Which
one of the following best describes the main purpose of this “Note”?

A. To provide detail for a “condensed” amount
presented on the face of the financial
statements.
B. To provide additional information about
items/amounts presented on the financial statements.
C. To provide information about items not
directly included in the financial statements.
D. All of these describe the purpose of
this Note.

16. Which
one of the following statements is correct (true)?

A. The financial statements were prepared
without using any estimates.
B. Property and equipment, net of 8,872 on
the Feb. 2, 2013 balance sheet includes Land of 7,575.
C. Kohl’s uses the “LIFO” (last-in,
first-out” cost flow method to value its inventories.
D. Revenue from gift card sales is
recognized when the gift cards are redeemed.

17. Ratios are not GAAP,
and anybody can develop a ratio to use in helping to evaluate information. But ratios that are developed (used) should
logically make sense and be appropriate from a mathematical stand-point. Ignore
the apples and oranges if they are confusing.

The
asset efficiency ratios given above include the following:

(9). Accounts receivable turnover ratio =
net credit sales (or net sales)/average
accounts
receivable
(11). Inventory
turnover ratio = cost of goods sold/average
inventory

Which
one of the following statements is false
(incorrect) with respect to the two ratios given
above (think logically)?

A. sales, and thus cost of goods sold (i.e.
the numerators of the ratios) occur throughout the period and thus
average inventory [= (beg. inventory + ending inventory)/2] is used in the
denominator of these ratios (rather than just ending inventory) in order to divide “apples by
apples” [instead of dividing apples by an orange]
B. Cost of goods sold is used in the
numerator of the inventory turnover ratio rather than using net sales (as is true for the
A/R turnover ratio) because inventory is a cost
based number (rather than a selling price based number) [and “apples” should be divided by “apples”].
C. If all sales for a company were made on
credit then the accounts receivable turnover ratio must equal the
inventory turnover ratio.
D. If credit terms to customer are reduced
from n/60 to 2/10, n/30 the accounts receivable turnover ratio should
increase.

18. Inventory
(and thus COGS) is the greatest cost for retailers and thus effective management of inventory is critical to the
success of these entities (which of course means
significant analysis of these amounts occurs).
Compute the approximate “days to sell”
(days in inventory) for Kohl’s for fiscal 2012.

A. 103 days B. 96 days C. 66 days D. 111 days

19. For
fiscal 2012 who had the better “days to sell” (i.e. days in inventory”) ratio?
(2 points)

A. Ko