Businese memo( Property, Plant & Equipment - J&J)

johnson_and_johnson_case_assignment-winter_2015.docx

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ACCT 322: Financial Reporting II

Johnson & Johnson Case Assignment

The project is intended to give you the opportunity to develop your critical thinking ability by applying, integrating and extending the knowledge you have gained in class. It will also work on your communication skills.

Assignment

You are part of a team who is interested in investing in Johnson & Johnson (J&J). You have been asked to investigate their long-lived assets and implications of their associated accounting choices. Your assignment is to write a business memo to the rest of the team summarizing the results of your investigation. Your write-up should be 1-2 pages plus a table or appendix with any supporting numbers/analysis. You will need to do/consider the following:

· Obtain a copy of Johnson & Johnson’s latest annual fiscal statements (FY2013).

· Review the financial statements and associated footnotes focusing on disclosures related to property, plant and equipment, intangible assets and goodwill.

· What types of long-lived assets does J&J report?

· How does J&J depreciate its property and equipment and amortize its intangibles (what policies do they follow)? What was the amount of depreciation expense in 2013 and 2012? What was the amount of amortization expense in 2013 and 2012? Does the increase or decrease for each make sense? Why or why not?

· What is J&J’s policy regarding impairment of intangible assets with indefinite lives?

· The cash flow statement reports that cash paid for additions to property, plant and equipment totaled $3,595,000,000 in 2013. Assume $1,452 million of this balance was for machinery and equipment. Further assume that the machinery and equipment have an expected useful life of five years with a salvage value of $378.6 million. Prepare a table comparing the depreciation expense and net book value of the machinery and equipment purchased in 2013 over its expected useful life assuming the company uses the straight-line depreciation method and the double-declining balance method. In both cases, assume the company recorded a full year of depreciation in 2013.

· Using the formulas in the textbook (pages 627-628) calculate asset turnover and rate of return on assets (ROA) for J&J in 2013. How does this compare to Merck’s 2013 asset turnover of 41.68% and ROA of 4.28%?

The final version of your write up is due Wednesday, January 28th (See handout on the class webpage for tips on writing business memos and expected format.)

Good luck and have fun!

Dr. Barbara Grein