Discount, Variety Stores Module 11: Adjusting Accounting Information Claire (Lan) Lin
Three Adjustments Impacts on NEA, EPAT, and forecasts
Adjustment A: Inventory Method Note 1: Summary of Significant Accounting Policies Inventories The Company …using the last-in, first-out ("LIFO") method for substantially all of the Walmart U.S. segment's inventories. The Walmart International segment's inventories are primarily valued by the retail method of accounting, using the first-in, first-out ("FIFO") method. ..The Sam's Club segment's inventories are valued based on the weighted-average cost using the LIFO method. At January 31, 2014 and January 31, 2013, the Company's inventories valued at LIFO approximate those inventories as if they were valued at FIFO.
Adjustment A: Inventory Method (Costco) Costco’s Inventory The impacts are insignificant compared with total income of $2039 and $1909 in 2013 and 2012 respectively.
Adjustment B: Operating Leases Impacts of operating leases on financial reporting
Adjustment B: Operating Leases Step 1: Determine the discount rate Walmart discloses capital leases in addition to operating leases. An implicit rate of return on those capital leases can be imputed (the rate that yields the present value computed by the company given the future capital lease payments. Discount Rate: 12%
Adjustment B: Operating Leases Step 2: Compute the present value of future lease payments The present value is $8,823
Adjustment B: Operating Leases Step 3: Enterprise asset increases by $8,823 Financing liability increases by $8,823, the current portion is $489 (1548-8823*0.12). Step 4: Capitalizing operating leases affects EPAT via addition of depreciation as well as the removal of the operating lease payments which had typically included in selling, general and administrative expenses.
Adjustment B: Operating Leases Two journal entries to record the adjustments: Asset under capital lease 8,823 Current portion of lease liability 489 Noncurrent lease liability 8,834 Depreciation expense 621 Interest expense 1,101 Retained earnings 1,722 The impacts are not significant compared to the total NEA of $128,333 and EPAT of 20,063. However, it will still influent forecast.
Adjustment C: Stock-Based Compensation General Information of Options and Stock Prices
Adjustment C: Stock-Based Compensation Step 1: Value of options exercisable at beginning of year using beginning of year share price. 5326*(68.36-50.00)=97,785 Step 2: Value of options exercisable at beginning of year using end of year share price. 5326*(74.20-50.00)=128,889 Step 3: the Value of ESOs exercised during the current year 3421*(71.28-48.88)=76,630 Step 4: the value of ESOs cancelled during the current year 4415*(71.28-59.43)=4,918 Step 5: Value of options exercisable at end of year using end of year share price 3119*(74.20-48.45)=80,314
Adjustment C: Stock-Based Compensation Step 6: Compute estimate of additional share-based compensation from information computed above. (5)-(2)+(3)+(4) = 32,973 Step 7: Adjust NFL, CSE, EPAT, and FEAT using information computed above.
Adjustment C: Stock-Based Compensation Two journal entries to record the adjustments: Retained earnings 97,785 Share-based compensation liability 97,785 Share-based compensation expense, enterprise 32,973 Share-based compensation liability 17,471 Share-based compensation expense, financing 50,444 These numbers are significant compared the total EPAT of 20,063 and NFL of 51,990. It would influent forecasts.