INSTRUCTIONS: Please organize your answers as a Word document with 12-point font. BE SURE TO SHOW YOUR WORK SO THAT PARTIAL CREDIT MAY BE ASSIGNED.
I. WorldCom, Inc. – Capitalized Costs and Earnings Quality (14 points total)
Answer questions (e), (f), and (g) of the WorldCom case (attached here). Be sure to show your work so that partial credit can be assigned.
II. Winnebago (36 points total)
Attached below are excerpts from the Annual Report of Winnebago Industries for their fiscal year ended on August 30, 2014. Use these excerpts to answer the following questions: (SHOW WORK)
(a) Based solely on information in Winnebago’s Cash Flow Statement, what was the net book value of property, plant, and equipment sold for cash during fiscal 2014? (6 points)
(b) Based on data for Winnebago’s property, plant, and equipment (PP&E) at 8/31/2013 and depreciation expense for fiscal 2014, estimate the weighted average useful life of their PP&E subject to depreciation. – (Hint: Keep in mind that Note 6 on Goodwill and Amortizable Intangible Assets states that amortization expense for fiscal 2014 was zero.) (6 points)
(c) Estimate what Winnebago’s Gross Profit would have been for fiscal 2014 if they had used FIFO instead of LIFO to account for their inventories. (6 points)
(d) Note that finished goods inventory decreased from 8/31/2013 to 8/30/2014 while both work-in-process and raw materials increased during the same period. Describe in one or two sentences why these inventory component changes are consistent with the nearly 18% increase in Winnebago’s net revenues for fiscal 2024? (6 points)
(e) Show the summary journal entry made by Winnebago to record income tax expense for their year ended August 30, 2014. (6 points)
(f) Winnebago has a long-term deferred tax liability that increased from $917 thousand to $992 thousand during fiscal 2014. Does this imply that depreciation expense for financial reporting purposes was greater or less than depreciation expense for tax reporting purposes? Explain the basis for your answer. (6 points)
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