Case Study 2

Matt Isaacs
ACC 5003

The following case study will be comparing the accounting of liabilities and stockholder
equity of the following S&P 500 companies: Union Pacific (UNP) and Federal Express (FDX) as
well as how they are disclosed on their SEC forms. These forms are important for providing
accountability to the shareholders and oversight from the government to protect the
investments of those who are invested in these corporations.

Bonds are a way for companies to fund operations by selling bonds that pay interest at a
contractually agreed upon rate with a set maturity date. At the time of issuing the effect on the
balance sheet is recorded as an increase of cash and a corresponding increase in liabilities that
is recorded as a bond payable. This is also recorded in the cash flow statement as an infusion of
cash. There is no effect on the income statement. Following the initial issuance of the bonds,
the company must make regular payments to bond holders based on the agreed upon contract.
Each payment is recorded in financial statements in the following way. In the balance sheet the
payment results in a decrease in cash assets and a corresponding decrease in retained earnings
of stockholder equity. This payment is recorded as an operating expense in cash flows that is
negative. The payment is recorded in the income statement as an interest expense that is also
negative. The totality of the bond should be paid off by the set maturity date. Union Pacific
recently raised $600,000,000 in capital to fund its green initiatives using bonds. The bulk of
which consists if a bond that has an interest rate of 3.75% and a maturity date of March 15 th
2024. This is disclosed on their 10-K SEC form. Similarly, Federal Express issued bonds worth
$500,000,000 in 2018 that has an interest rate of 3.4% with a maturity date of February 14 th
2028. The payments for the interest on this bond are disclosed on their 10-K SEC form.

In the normal course of running a company, liabilities are necessary to fund the
operations that result in profit. Contingent liabilities specifically are liabilities that may occur
from past transactions. In accounting, since these are potential liabilities, they are recorded
given the probability they will occur. An important factor for accounting probable liabilities is
the ability to measure these liabilities which are classified as estimable or not estimable. If the
liability is estimable, the expense is recorded and disclosed. If the liability is not estimable, only
disclosure of the liability is recorded. These liabilities can affect the financial health of the
company because they represent a risk that can result in paying company funds to an outside
entity. These liabilities are disclosed and recorded in the balance sheet. They do not affect the
income statement or statement of cash flow because they are they have not occurred yet, so
they do not result in a transfer in any cash. Both companies analyzed disclosed their liabilities
for the for the fiscal year on their 10-K forms in their balance sheets. Federal express
summarized their liabilities as a consolidated balance sheet that provided more detail than the
Union Pacific balance sheet.
 Common stock is issued by publicly traded corporations as the major means of raising
capital to fund operations. The stock issued that is in the hands of stockholders is called
outstanding stock. Companies can also issue preferred stock which can have preferential rights
over the common stock. Neither UNP or FDX has preferred stock. When stocks are issued it
affects the financial statements in the following ways. On the balance sheet, the amount the
stocks are sold for is listed as a cash asset. This is balanced with a corresponding increase in
stockholder equity that can be broken into the amount sold in par and the amount paid that is
over the par value. This amount is shown on the cash flow statement as an increase in cash that
is labeled under financing. There is no effect on issuance on the income statement. This stock
can be purchased by the company itself for various reasons and is termed Treasury Stock.
Treasury stock affects the balance sheet and is recorded as a decrease in cash that is balanced
by a corresponding decrease in stockholder equity. This transaction is recorded in the cash flow
statement as a decrease in cash under the label of financing. Treasury stock transactions do not
affect the income statement. Both Union Pacific and Union pacific have their treasury stock
listed in their balance sheets as well as in a separate statement of shareholder equity. In 2022
Union Pacific repurchased 27 million of their shares which decreased their common stock
available by 5%. In 2023 Federal Express purchased $1,500,000,000 in their stock which is now
treasury stock.

Dividends are usually cash payments to shareholders that distribute the earnings of the
corporation. Many companies use dividends as a way of making the stock more attractive to
investors. There are 3 dates important in the accounting of dividends that affect financial
statements. First, the declaration of dividends on the balance sheet is recorded as a liability
under the label “dividends payable” as a positive value that is balanced with a corresponding
negative value in the stockholder equity under the label “retained earnings”. Declaration of
dividends do not affect the cash flow or income statements. The other date that is important
for accounting is the payment of the cash dividends. These payments are recorded in the
balance sheet as a decrease in cash and a corresponding decrease in liabilities under the label
dividends payable. Under cash flow statements this is recorded as a decrease in funds under
the label of financing. There is no effect on the income statement. In 2022 Union Pacific paid
out $3.2 Billion in dividends by paying $3.88 per share to their 1,112,000,000 common shares.
Federal express paid $1,177,000,000 in dividends to their shareholders in 2023 which
corresponds to $2.60 per share.

Stock splitting is when a corporation divides existing stocks, resulting in a lower

individual price. Companies may do this to reduce to attract investors by broadening the
amount of people who can afford the now lower price per stock. This has no effect on financial
situations because it does not change the amount of money the total stocks are worth however
it is often disclosed in the notes of the financial statements. Neither Union Pacific nor Federal
Express did any splitting of their stocks in the financial statements I analyzed.

This case study covered the characteristics of dynamics of liabilities and stockholder
equities as they pertain to S&P 500 companies as well as the specifics of two selected
companies on this exchange. The information found on the SEC forms is important because
they provide information both to the government and potential stockholders to insure the
smooth operation of the company and stability of investments. Overall, when comparing these
two companies, I found the Federal express SEC forms provided more detail and was easier to
find the necessary information than the Union Pacific forms.

References

Union Pacific. (2023). Form 10-K 2023.

https://www.sec.gov/ix?doc=/Archives/edgar/data/100885/000143774923002959/
unp20221231_10k.htm

Union Pacific. (2023). Form 10-Q 2023.

https://www.sec.gov/ix?doc=/Archives/edgar/data/100885/000143774923028607/
unp20230930_10q.htm#equity

Federal Express. (2023). Form 10-Q 2023. https://d18rn0p25nwr6d.cloudfront.net/CIK-

0001048911/464d631e-4d60-4fdb-b704-b2385478fb17.pdf

Federal Express. (2023). Form 10-K 2023. https://d18rn0p25nwr6d.cloudfront.net/CIK-

0001048911/a9687faf-0a00-4135-a02e-0fc07e15d117.pdf

Union Pacific Investor Fact Book 2021 (2021)

https://www.up.com/cs/groups/public/@uprr/@investor/documents/investordocuments/
pdf_unp_2021_factbook.pdf

Warren, C., Farmer, A., & Jones, J. P. (2023). Survey of Accounting (10th ed.). Cengage
Learning US. https://reader.yuzu.com/books/9780357900383

FedEx. Zach's Investment Research. Retrieved November 27, 2023, from

https://www.zacks.com/stock/quote/FDX?q=fdx?q=FDX?q=FDX

Union Pacific. Zach's Investment Research. Retrieved November 27, 2023, from
https://www.zacks.com/stock/quote/UNP?q=unp

Union Pacific Corp. Morningstar. Retrieved November 27, 2023, from

https://www.morningstar.com/stocks/xnys/unp/dividends