You are to read the 2012 10K for Crane Co. The 10K is the SEC filing that contains the firm’s audited annual report. You are to analyze this firm’s financial statements and footnotes and answer the following questions.
(1) Create a Taccount allowance for doubtful accounts and explain by debits and credits in this Taccount how the allowance account changed from its beginning balance to its ending balance for 2010, 2011, and 2012. Compute Allowance for doubtful accounts/gross accounts receivable and bad debts expense/sales for each of those years. Do they indicate a concern with management’s possible manipulation of these
(2) Compute the cash collected from customers in 2011 and 2012. Contrast the growth in sales revenues and the growth in cash from customers. Also evaluate the quality of sales revenues.
(3) Complete five Taccounts to determine the following amounts in 2012: the cost of finished goods sold in 2012; the cost of completed goods transferred from work in process in 2012; the cost of raw materials transferred to work in process in 2012; the cost of raw materials purchased in 2012; and the amount of cash disbursed for rawmaterial purchases during 2012. Assume (a) finished parts and subassemblies are also finished goods and (b) the cost of direct and indirect materials put into production equals half of all production costs.
(4) As of December 31, 2012, how much income taxes has Crane saved by using LIFO? Assume a marginal tax rate of 35%.
(5) Combine land, buildings and improvements, and machinery and equipment into one property, plant, and equipment (PPE) account. Recreate the Taccount for gross PPE, recognizing 2012 transactions that increased or decreased the account from its 2012 beginning balance to its ending balance in 2012. Also recreate the Taccount and its transactions for accumulated depreciation for 2012. What is the summary journal entry for the sale or disposal of PPE in 2012? What is the gain or loss on this transaction?
(6) Crane has much legal liability with respect to asbestos claims, but it has insurance that lessens the burden. Via a Taccount analysis, estimate the 2012 cash receipts from the insurance companies and estimate 2012 cash disbursements because of these asbestos liabilities. Compare your answers with those provided in the cash flow statement. Why is there an asbestos charge on the income statement in 2011 but not in 2012?
(7) Crane has operating leases in which it has made commitments to disburse cash over the lease terms. What is the present value of these lease commitments?
(8) Recreate the 2012 journal entry made by Crane for the stockbased compensation expense and the 2012 entry made for the exercise of these options and restricted stock.
Note: there is not enough disclosure for this entry to tie out perfectly; you will have an unspecified plug figure.
(9) Evaluate the solvency of Crane Co. and rate the firm on a scale from 1 (weak) to 10 (strong).
(10) Evaluate the quality of earnings of Crane Co and rate the firm on a scale from 1 (weak) to 10 (strong).