Project #1 – Interpretation of financial statements and the accounting cycle to capture economic events
Question 1
This case involves interpretation of Walmart 2025 annual report.
https://corporate.walmart.com/content/dam/corporate/documents/newsroom/2025/04/24/walmart-releases-2025-annual-report-and-proxy-statement/walmart-inc-2025-annual-report.pdf
Refer to the consolidated financial statements for financial year ended 31 January 2025.
Required
(a) Refer to the company’s consolidated income statement.
(i) What is company’s consolidated net profit after tax in 2024? What is company’s consolidated net profit after tax in 2025?
(ii) Based on net profit after tax, did the company’s financial performance improve from 2024 to 2025? Briefly explain (maximum 150 words) why did the company’s net income after tax change from 2024 to 2025.
Focus on the information on the consolidated income statement and notes to the accounts. You are not required to search for information beyond the annual report. You should use the consolidated net profit after tax (Do NOT use consolidated net income attributable to Walmart).
(b) Refer to the company’s consolidated statement of financial position (use the information in the “group” column). Your response should not exceed 70 words.
(i) Write out the accounting equation as at 31 January 2024 (i.e. Assets = Liabilities + Equity). How did the company finance its assets as at 31 January 2024?
(ii) Write out the accounting equation as at 31 January 2025 (i.e. Assets = Liabilities + Equity). How did the company finance its assets as at 31 January 2025?
(c) Refer to the company’s consolidated statement of cash flow. Consider its (i) cash flow from operations, (ii) cash flow from investing activities and (iii) cash flow from financing activities. Briefly comment (maximum 150 words) on the company’s overall cash flow generation in 2025. Is the overall cash flow generation healthy or weak in 2025?
(d) Using financial statements for year ended 31 January 2025, what is the financial impact (consider the impact (magnitude in dollars) on the net income after tax, statement of financial position and cash flow generation) :-
(i) if the company write off the entire prepaid expenses to the income statement?
(ii) 60% of the net accounts receivables defaulted before the financial year end? Assume no previous provision for doubtful debts were made.
Ignore tax effects. Note: You should use the accounting equation to help you to quantify the dollar impact on the financial statements.
Question 2 (Prepare financial statements for 2 consecutive years)
On 1 January 20x1, Company XYZ was incorporated. This question contains two parts.
Part One
On 1 January 20x1, XYZ has a share capital of $500,000 and cash of $500,000.
The following transactions occurred for year ended 31 December 20x1:-
1) On 2 January 20x1, XYZ purchased inventory of $100,000 (paid in cash).
2) On 3 March 20x1, XYZ made a credit sales of $170,000.
3) Refer to item (2). The cost of sales is $60,000
4) From the previous months sales made in 20x1, XYZ collected $90,000 cash from its customers.
5) On 31 December 20x1, XYZ paid $120,000 for two-years rent in advance (covering the period 1 January 20x2 to 31 December 20x3).
Assume each transaction is independent. Ignore the tax effects of the above transactions.
Required
(a) Prepare the journal entries to reflect the above transactions.
(b) Prepare the statement of profit or loss for year ended 31 December 20x1 and the statement of financial position as at 31 December 20x1 to incorporate the above transactions.
Part Two
In the subsequent year (i,e, for year ended 31 December 20x2), the following transactions occurred in XYZ: -
1) From the previous year sales made in prior year 20x1, XYZ collected $80,000 cash from its customers.
2) On 1 January 20x2, XYZ borrowed $200,000 from a bank. Interest rate is 10% per year.
3) On 5 November 20x2, XYZ declared and paid a cash dividend of $48,000.
4) On 31 December 20x2, XYZ made an adjusting entry related to the prepaid rent.
5) On 31 December 20x2, XYZ accrued the interest expense to the bank loan.
Assume each transaction is independent. Ignore the tax effects of the above transactions.
Required
(a) Prepare the journal entries to reflect the above transactions.
(b) Prepare the statement of profit or loss for year ended 31 December 20x2 and the statement of financial position as at 31 December 20x2 to incorporate the above transactions.
Question 3 (adapted from 2020 final test)
Company GEM is a technology consulting company listed in Singapore. The accounts assistant of Company GEM prepared the following unadjusted income statement for the period 1 January 20x1 to 31 December 20x1 and the unadjusted balance sheet as at 31 December 20x1.
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Profit and loss account from 1-1-20X1 to 31-12-20x1 (unadjusted)
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Service Revenue
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700,000
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Office rental expense
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(380,000)
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Depreciation expense
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(50,000)
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Net profit
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270,000
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Statement of Financial Position as at 31-12-20x1 (unadjusted)
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Cash
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200,000
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Accounts receivable
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100,000
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Prepaid insurance
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45,000
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Gross Property, Plant and Equipment
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390,000
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Accumulated depreciation
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(140,000)
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Total Assets
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595,000
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Accounts payable
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200,000
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Unearned revenue
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80,000
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Ordinary Share capital
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100,000
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Retained earnings
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215,000
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Total liabilities and equity
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595,000
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The Chief Financial Officer of Company GEM reviewed the above unadjusted accounts and found that the following adjustments were not reflected in the unadjusted accounts:-
1) The prepaid insurance of $45,000 was purchased on 1 January 20x1 and it covered a three-years period with effect from 1 January 20x1. No amortization of prepaid insurance was made during 20x1.
2) An accrual for salary expenses of $6,000 was not made in 20x1.
3) On 1 August 20x1, GEM omitted to invoice customer XYZ for $30,000 related to services performed in the previous month.
4) On 10 November 20x1, GEM sold a machinery equipment (Gross cost $90,000 and accumulated depreciation $30,000) for a cash consideration of $50,000. This transaction was not recorded in 20x1.
5) On 20 December 20x1, GEM received $80,000 in advance from its customers for services to be completed later. The $80,000 was recognized as unearned service revenue on 20 December 20x1. As at 31 December 20x1, GEM completed 40% of the services to its customers. No adjustment was performed for the 40% work done and completed as at 31 December 20x1.
Assume each transaction is independent. Ignore the tax effects of the above transactions. Company GEM did not declare any dividends during the year 20x1.
Required
a) Prepare the journal entries to reflect the above adjustments. Narrations are not required.
b) Prepare the revised profit or loss statement for the period 1 January 20x1 to 31 December 20x1 and the revised statement of financial position as at 31 December 20x1 to incorporate the above adjustments.
Question 4
WBS Problem 7.3A.
Company Putnam & Putnam. Aging accounts receivable; write-offs.