Arab Open University

BE210: TMA01 2010-2011

Cut-Off Date: 25th of Dec. 2010

About TMA:
The TMA covers the financial accounting concepts and practices in the businesses. It is
marked out of 100 and is worth 25% of the overall assessment component. It is intended to assess
students’ understanding of some of the learning points within chapters 1 to 4. This TMA requires
you to apply the course concepts.

The TMA is intended to:

 Increase the students’ knowledge about the reality of the accounting as a profession.
 Assess students’ understanding of key learning points within chapters 1 to 4.
 Develop the ability to understand and interact with the nature of the financial statements in
reality.
 Develop students’ communication skills, such as memo writing, essay writing, analysis and
presentation of material.
 Develop basic ICT skills such as using your e-library, searching, selecting, managing and
presenting information.

The TMA:
The TMA requires you to:
1- Review various study chapters (from Ch. 1 to 4) of ‘Financial and Managerial
Accounting’ Book and apply some of the concepts within it.
2- Conduct a simple information search using the internet.
3- Present your findings in not more than 1,500 words (I suggest it to be 750 words for each
part). The word count excludes headings, references, title page, diagrams and any tables.
4- You should use a Microsoft Office Word 2003 or 2007 and Times New Roman Font of 14 points.
5- You should read and follow the instructions below carefully. Each part of the process will
carry marks for the assignment.

Criteria for Grade Distribution:

Content Structure and
Criteria Referencing Total marks
Part A Part B Presentation of ideas
Marks 50 40 5 5 100
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The TMA Questions

PART A: Financial Reporting on the Internet
(The case of Ingram Micro Inc.)
Access the Ingram web page (www.ingrammicro.com). Click on Investor Relations and go to the
Annual Report for 2009.
Instructions
1- Who is responsible for the preparation of the financial statements and related information that are
presented in this report?
2- Why do Ingram needs accounts? How are they organized?
3- Continue paging through the annual report until you find the “Selected Consolidated Financial
Data.” Please, for the three most recent years, list the amounts reported for “Net Sales”, “Operating
Income”, and “Net Income”. Is Ingram growing and expanding? Is Ingram a profitable company”?
Comment whether the three years trend of revenues is favorable or unfavorable.
4- Which Big-Four accounting firm audited Ingram in 2009? What impression does the auditor’s
report convey? Explain why all public, and large proprietary companies must be audited (Hint: some
research is required here).
5- Do you agree that Ingram’s balance sheet is both classified and comparative? Explain why or why
not.
6- Does the Ingram Company use cash-basis or accrual-basis accounting? How can you tell? How
does the accrual basis of accounting differ from the cash basis of accounting? Which gives a more
accurate picture of the profitability of Ingram Inc.? Explain.
7- Does net income represent a supply of cash that could be distributed to stockholders in the form of
dividends? Explain and support your answer by suitable figures from the Ingram's financial report.
8- Find Ingram's 2009 income statement and cash flow statement. What journal entry did Ingram
make in 2009 to record:
a-Interest Income.
b-Interest Expense.
c-Purchase of property and equipment.
9- For the two most recent years (2009 and 2008), are assets primarily financed by debt or owner’s
equity? Please explain.
10- What was Ingram’s amount of working capital at year-end 2009? For the two most recent years
(2009 and 2008), calculate Ingram's current ratio. What is meant by this ratio? Show your work in
calculating this ratio. Write a brief statement describing what you have learned about the Ingram’s
liquidity and its trend.
[50
Marks: 5 each point]
PART B: Understanding the Information in Financial Statements
Today is March 31 and Medo has just received the annual report of GAMMA Company, in which
he owns stock. Displayed below are the comparative balance sheet and income statement that have drawn his
attention.
Balance Sheet Dec. 31, 2009 Dec. 31, 2008 Income Statement For Year 2009
Cash $ 3,230 $ 3,930 Sales revenue $1,261,000
Accounts receivable 17,970 15,300 Cost of goods sold 781,820
Inventory 29,140 23,650 Gross profit $ 479,180
Buildings and equipment 129,740 120,900 Operating expenses:
Accumulated depreciation (13,820) (6,490) Advertising 81,450
Land 57,200 57,200 Depreciation 7,330
Total assets $ 223,460 $214,490 Utilities 49,920
Wages 295,610
Operating income 44,870
Accounts payable $ 6,010 $ 5,160 Interest expense 6,240
Interest payable -0- 6,670 Pretax income 38,630
Wages payable 19,140 16,450 Income tax expense 13,520
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7%, 10-year note payable 52,000 52,000 Net income $ 25,110

Contributed capital 109,980 109,980
Retained earnings 36,330 24,230
Total liabilities and equity $ 223,460 $214,490 Earnings per share $ 8.37
After reviewing this information, Medo makes the following comments:
I’m surprised that the value of the company’s land has not increased. Prices have been increasing -a
.rapidly in the area the company is located
.I’m sure that I received a dividend from this company, but they don’t report that they paid any -b
I don’t see how the company’s cash balance could have declined when it took in $1,261,000 in -c
.cash from sales to customers
.I see that the value of the buildings and equipment declined by $7,330. That seems about right -d
I don’t understand why the company’s highly trained workforce is not listed as an asset. It is one of -e
.the most important resources that the company has
.One thing I really like about this company is the up-to-the-minute financial reports it provides -f
.It’s good to see that the value of the inventory has increased since last year -g
Instructions:
1- Help Medo better understand these financial statements by responding to each of his comments.
Explain whether you agree or disagree with each comment and why. [21 Marks: 3
each point]
2- Did the company declare and pay cash dividends during the year just ended? If so, what total
amount was distributed? [3
Marks]
3- Approximately how many shares of stock does the company have outstanding? [3
Marks]
4- Write a memo to Medo explaining why he should not interpret the balance sheet as an accurate
measure of the value of the business. Describe the limitations of financial statements that might mean
that the market value of the business was higher (or lower) than the financial statement amounts (Hint:
some research is required here). Use the following format for the memo: [7
Marks]
Memo
Date: ……………….
To: ……………….
From ……………….
:
Re: limitations of financial statements
Note: A memo has four parts:
a- Introduction.
b- Factual background.
c- Main body (data/information).
d- Conclusion.
To know how to write a business memo, you can make a search on the Internet
(e.g. http://www.writeexpress.com/business-memo.html)
5- Identify three questions that can be answered by reviewing a Company's income statement but
cannot be answered by reviewing a Company's balance sheet or stockholders' equity. Be specific.
[3 Marks]
6- Identify three questions that can be answered by reviewing a Company's balance sheet but cannot
be answered by reviewing a Company's income statement or stockholders' equity. Be specific. [3
Marks]
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In your answer, you should explain each point or inquire separately. Use the following
headings (below) to make up the different sections of your answer:
The PT3 form (Available on LMS)
Title and contents page
Part A Financial Reporting on the Internet (The Case of Ingram Micro Inc.)
Part B Understanding the Information in Financial Statements
Reference list (Recorded according to the Harvard style - Available on LMS)

Good Luck!
Dr. Helal Afify