Submitted by: Submitted by lucywang
Views: 79
Words: 1663
Pages: 7
Category: Business and Industry
Date Submitted: 05/24/2014 07:04 PM
Case 3.3: W. T. Grant Company
I. Case Objectives
A. Demonstrate the importance of analyzing cash flow from operations in assessing the impact of operations on liquidity.
B. Demonstrate the impact of changes in accounting principles and misstatements of accounting data on the analysis and interpretation of financial statements.
C. Demonstrate how inadequate financial controls can get a decentralized organization into trouble.
II. Class Discussion
Begin by placing the following chart on the board:
1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976
MAJOR
EVENTS
Bank- Liquidation
Bank ruptcy
Support
CHANGES IN Consolidation Income ACCOUNTING of Finance Recognition
PRINCIPLES Subsidiary on Installment
Sales
Spend a few minutes discussing the two accounting changes and their general impact on the financial statements. The purpose of this discussion is merely to familiarize students with these accounting changes. Also spend a few minutes addressing this question: Should the analysis be based on the amounts originally reported for each year (Exhibits 3.38 and 3.39) or the amounts retroactively restated for changes in accounting principles (Exhibits 3.40–3.42)? Although arguments can be made for using each data set, most of the analysis is based on the amounts as retroactively revised for each year.
Then distribute Exhibit 3.A (see page 3-40) from this teaching note. Also place this exhibit on an overhead transparency. Ask this question: When did the stock market perceive Grant to have problems? The first panel in Exhibit 3.A suggests that this occurred sometime during 1971. The actual date was in July 1971. Place this event on the time line on the board.
Ask students this question next: If you were analyzing the financial statements each year as Grant issued them, when would you have begun worrying about the company? Place a plain...