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Question(s) / Instruction(s):

Accounting 381


Due:      Tuesday, February 14th  (at beginning of class).  Also, please be prepared to discuss the questions and your solution in class on this date.


Required:            Answer the following questions based on your examination of the Nike 2011 10-K (pdf file is on D2L).  This project should be completed on an individual basis. Your discussion should be no more than 4 pages in length.  You do not need to use a particular format to prepare your discussion.  However, your solutions should be clearly presented. Answers should be prepared in complete sentences and in your own words.


General questions

1.            In what major business segment(s) does Nike operate?

2.            In what geographic segments does Nike operate?

3.            On which stock exchange is Nike traded?

4.            What is an SEC Form 10-K?

5.            What is an SEC Form 10-Q?

6.            Who is Nike’s auditor?

7.            Did Nike get a “clean opinion?”

8.            What do we call a “clean opinion?”

9.            What is the MD&A (Management’s Discussion and Analysis)?

10.          What is a proxy statement?

11.          Does Nike have any incentive compensation plans for its employees?

12.          What subsequent events, if any, did Nike disclose?

13.          On which statement does Nike report total comprehensive income for 2011?

14.          Where does Nike discuss its accounting policies?

15.          Does the company have any covenants associated with its long-term debt?



Income Statement questions

(Hint:  some answers may be in the footnotes to the financial statements or on a different statement than the income statement.)

1.            Does Nike use the multi-step or single step method?

2.            Is Nike’s total cost of sales going up or down?  As a percent of sales, is Nike’s total cost of sales going up or down? 

3.            Is Nike’s net income going up or down?

4.            Does Nike have any discontinued operations or extraordinary items?  How can you tell?

5.            Does the company have any restructuring charges in 2011?

6.            What is the Goodwill impairment charge in the consolidated statement of income related to?

7.            Did Nike pay any preferred or common stock dividends in 2011?

8.            What are the numerator and denominator for the calculation of the 2011 Basic EPS of $4.48?



Balance Sheet questions

1.            What is a classified balance sheet?

2.            Does Nike have a classified balance sheet?

3.            Does Nike have retained earnings or an accumulated deficit in 2011?  What is the dollar amount?

4.            What is an “accumulated deficit?”

5.            How does an accumulated deficit get bigger?

6.            Will an accumulated deficit ever go away?

7.            Can a company have a deficit and cash at the same time?  If so, how?

8.            What is the 5/31/11 balance in Nike’s accumulated other comprehensive income?  What types of items are included in Nike’s accumulated other comprehensive income?

9.            What types of assets does the company use fair value measurements for?  What is the dollar value of 5/31/11 asset fair value measurements using the Level 1 fair value hierarchy?  Level 2?  Level 3?



Statement of Cash flows questions

1.            Does Nike use the direct or indirect method?

2.            Why doesn’t cash flow from operations equal net income?



Financial ratio questions [use the ratio formulas from Keiso Appendix 5A (p. 245) for calculations]

1.            What is Nike’s 2011 current ratio? 

2.            Has Nike’s current ratio increased or decreased from 2010?

3.            What is Nike’s 2011 inventory turnover? 

4.            What is Nike’s 2011 rate of return on assets? 

5.            Based on the calculations above, comment on Nike’s liquidity, activity, and profitability.



Revenue Recognition, receivables and cash questions

1.            What is Nike’s revenue recognition policy?

2.            What does “cash equivalent” mean?

3.            What was the amount of the allowance for uncollectible accounts receivable at 5/31/11 and 5/31/10?



Inventory question

1.            What valuation method does Nike use?





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