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01 ELMS Activity 1
01 ELMS Activity 1
“I can’t believe it. Why don’t you accountants prepare relevant financial statements?” Your friend Shayne is
a finance major and is constantly badgering you about what she perceives to be a lack of relevance of
financial statements prepared according to generally accepted accounting principles (GAAP). “For example,
take a look at this statement of financial position for Under Armour (see figures below) that I just
downloaded from the Internet. The equity (or book value) of the company, according to the 2X15 statement
of financial position, was nearly $1.7 billion. But if you multiply the number of outstanding shares by the
stock price per share at the same point in time, the company’s market value was about $9 billion. I thought
equity was supposed to represent the value of the company, but those numbers are not close.” You decide
to look at the company’s balance sheet and try to set Shayne straight.
Stockholders’ equity
Additional paid-in capital 636,630,000
Retained earnings 1,076,533,000
Accumulated other comprehensive loss (45,013,000)
Total stockholders’ equity 1,668,222,000
Total liabilities and stockholders’ equity $ 2,868,900,000
The shareholders’ equity presented in the statement financial position does not represent the market value of
the company but rather it shows the condition of the company’s total shareholders’ equity after adding and
deducting the accounts that affect it. The statement of financial position shows the entity’s financial condition
at a certain date that are based on a company’s past recorded transactions and these do not represent the
value of a business. Multiplying the number of shares from its price per share which shows the so-called market
value of the company involves only the value of the shares alone and not the total shareholders’ equity of the
company
2. The usefulness of the balance sheet is enhanced by classifying assets and liabilities according to common
characteristics. What are the classifications used in Under Armour’s statement of financial position, and
what do those categories include?
The classification of the assets in the balanced sheet includes current assets, non-current assets, current
liabilities, non-current liabilities, and equity. Current assets are categorized by cash and cash equivalents,
accounts receivable net, inventories, prepaid expenses, and other current assets while non-current assets are
categorized by property and equipment net, goodwill, intangible assets net, deferred income taxes and other
long-term assets. Current liabilities are categorized by accounts payable, accrued expenses, current maturities
of long-term debt and other current liabilities while non-current liabilities are categorized by long-term debt,
long-term line of credit, and other long-term liabilities. Lastly, equity is categorized by additional paid-in
capital, retained earnings, and accumulated and other comprehensive loss.