nike

Accounting 381Summer 2014

Project 1: Nike 2013 10-K Solution

(11 points)

Due: Wednesday, July 16, 2014(at beginning of class).

Required: Answer the following questions based on your examination of the Nike 201310-K (pdf file is on D2L). This project should be completed on an individual basis. Please answer questions on a scantron.

General questions

1. In what major business segment(s) does Nike operate?

a. Sportswear

b. Sports gear and accessories

c. Retail

d. Footwear, apparel, equipment, accessories and services

2. In what geographic segments does Nike operate?

a. U.S.; Canada, South America, Caribbean, Europe, Middle East, Africa; Asia Pacific

b. North America, Western Europe, Central and Eastern Europe, Greater China, Japan and Emerging Markets

c. Americas, Asia, and Europe

d. U.S.; Europe, Middle East and Africa (collectively, “EMEA”); Asia Pacific; and Americas

3. On which stock exchange is Niketraded?

a. Penny stocks

b. AMEX

c. NYSE

d. NASDAQ

4. What is the annual report that provides a comprehensive overview of the company's business and financial condition and includes audited financial statements?

a. SEC Form 8-K

b. SEC Form 10-K

c. SEC Form 10-Q

d. SEC Def 14-A

5. What is the SEC report that includes unaudited financial statements and provides a continuing view of the company's financial position during the year, and must be filed for each of the first three fiscal quarters of the company's fiscal year?

a. SEC Form 10-K

b. SEC Form 8-K

c. SEC Def 14-A

d. SEC Form 10-Q

6. Who is Nike’s auditor?

a. KPMG

b. Deloitte

c. PriceWaterhouseCoopers

d. Ernst & Young

7. Did Nike get an “unqualified” opinion?

a. No

b. Yes

8. What covers three financial aspects of an enterprise’s business – liquidity, capital resources, and results of operations? It requires management to highlight favorable or unfavorable trends and to identify significant events and uncertainties that affect these three factors.

a. Proxy statement

b. Statement of Retained Earnings

c. Press release

d. MD&A (Management’s Discussion and Analysis)

9. What are US publicly traded firmsrequired to file with the SEC when soliciting shareholder votes? This statement is useful in assessing how management is paid and potential conflict-of-interest issues with auditors. The statement includes: voting procedure and information; background information about the company's nominated directors; director compensation; executive compensation; a breakdown of audit and non-audit fees paid to the auditor

a. Press release

b. MD&A (Management’s Discussion and Analysis)

c. Statement of Retained Earnings

d. Proxy statement

10. Does Nike have any incentive compensation plans for its employees?

a. No

b. Yes

11. Subsequent events are defined as the disclosure of material events or transactions that occur between the balance sheet date and its issuance date. Did Nike disclose subsequent events in its 2013 financial statements?

a. No

b. Yes

12. On which statement does Nike report total comprehensive income for 2013?

a. Consolidated Balance Sheets

b. Consolidated Statements of Shareholders’ Equity

c. Consolidated Statements of Income

d. Consolidated Statements of Comprehensive Income

e. Consolidated Statements of Cashflows

13. Where does Nike discuss its accounting policies?

a. Notes to the financial statements

b. Item 7: Management Discussion and Analysis of Financial Condition and Results of Operations

c. All the above

14. Did Nike have any dividends that were declared but not paid in 2013?

a. No

b. Yes

15. Does the company have any covenants associated with its long-term debt?

a. No

b. Yes

Income Statement questions

(Hint: some answers may be in the footnotes or on a different statement than the income statement.)

16. DoesNikeuse the multi-step or single step method?

a. Single-step

b. Multi-step

17. Compared to 2012, is Nike’stotal cost of sales going up or down in 2013?

a. Down

b. Up

18. Compared to 2012, as a percent of sales, is Nike’s cost of sales going up or down in 2013?

a. Down

b. Up

19. Compared to 2012,is Nike’snet income going up or down in 2013?

a. Down

b. Up

20. Does Nikereport any discontinued operations or extraordinary items in 2013?

a. No

b. Yes

21. Did Nike pay any preferred or common stock dividends in 2013?

a. No

b. Yes

22. What is the denominator for the calculation of the 2013 Basic EPS of $2.75?

a. 916.4 million

b. 920.0 million

c. 939.6million

d. 897.3 million

Balance Sheet questions

23. What is a “classified” balance sheet (hint – look at Chapter 5 of Kieso)?

a. A balance sheet that puts assets and liabilities in order of liquidity

b. A balance sheet that includes categories

c. A balance sheet that separates assets and liabilities into current and non-current sections

d. A balance sheet that has a restricted audience

24. Does Nike have a classified balance sheet?

a. No

b. Yes

25. Does Nikehave retained earnings or an accumulated deficit in 2013?

a. Retained earnings

b. Accumulated deficit

26. What is the dollar amount of the retained earnings or accumulated deficit in 2013?

a. $11,156 million

b. $5,695 million

c. $5,588 million

d. $10,381 million

27. What is an “accumulated deficit?”

a. This occurs when a company has generated more losses than profits for a given year.

b. This occurs when a company has generated more losses over its life than profits.

c. This occurs when a company pays dividends during a given year.

d. This occurs when a company pays dividends every year.

28. Is it possible for an accumulated deficit to ever go away?

a. No

b. Yes

29. Is it possible for a company to have an accumulated deficit and cash at the same time?

a. No

b. Yes

30. What is the 5/31/13 balance in Nike’s accumulated other comprehensive income?

a. $125 million

b. $2.610 billion

c. $149 million

d. $274 million

31. What types of items are included in Nike’saccumulated other comprehensive income?

a. Gains and losses on cash flow hedges

b. Foreign currency translation

c. Gains or losses on net investment hedges

d. All of the above

e. None of the above

32. What types of assets does the company use fair value measurements for?

a. Derivative financial instruments only

b. Available-for-sale securities only

c. Derivative financial instruments and available-for-sale securities

d. None of the above

33. What is the dollar value of 5/31/13asset fair value measurements using the Level 1 fair value hierarchy? Level 2? Level 3?

a. $2,008 million, $3,225 million, and $5 million, respectively

b. $1,153 million, $1,977 million, and $3, respectively

c. $0 million, $34 million, and $0, respectively

d. None of the above

Statement of Cashflows questions

34. Does Nike use the direct or indirect method?

a. Indirect

b. Direct

35. Why doesn’t cashflow from operations equal net income?

a. The income statement includes non-cash items

b. The income statement is based on accruals

c. All of the above

d. None of the above

Financial ratio questions [use the ratio formulas fromKeisoAppendix 5A for calculations]

36. What is Nike’s2013current ratio?

a. 3.05

b. 3.51

c. 3.47

d. None of the above

37. Has Nike’scurrent ratio increased or decreased from 2012?

a. Increased

b. Decreased

38. What is Nike’s2013 inventory turnover?

a. 4.43

b. 4.16

c. 4.29

d. None of the above

39. What is Nike’s2013 rate of return on assets?

a. 14.13

b. 14.91

c. 15.04

d. None of the above

Revenue Recognition, receivables and cash questions

40. What is Nike’s revenue recognition policy?

a. Wholesale revenues are recorded when title passes and the risks and reward of ownership have passed to the customer, based on the terms of sale.

b. Retail sales are recorded at the time of sale.

c. All of the above.

d. None of the above.

41. How are the short-term investments in the 5/31/13 and 5/31/12 balance sheets classified?

a. Trading.

b. Held to maturity.

c. Available for sale.

d. All of the above.

42. What does “cash equivalent” mean?

a. Cash and short-term, highly liquid investments with maturities of three months or less a date of purchase.

b. Cash and short-term, highly liquid investments with maturities of three months at the balance sheet date.

c. All of the above.

d. None of the above.

43. What was the amount of the allowance for uncollectible accounts receivable at 5/31/13?

a. $104 million

b. $54 million

c. $91 million

d. $45 million

Inventory question

44. What valuation method does Nike use?

a. Inventories are stated at lower of cost or market and valued on a FIFO basis.

b. Inventories are stated at lower of cost or market and valued on an average cost basis.

c. All of the above.

d. None of the above.