Accounting ll (AC116) - Unit 5

Corey Parkinson, Elisia Wofford, Renee Thomas, Reese Cardinal

Instructor: Broderick Matrinez

Purdue Global University

7/19/2022
Annual Report Project
To the Student
The Annual Report Project (ARP) provides you the opportunity to analyze a corporate annual report. You
will obtain the annual report of a Fortune 500 company from their company website and
answer questions regarding the application of concepts studied in your financial accounting course.

The Annual Report Project:

· Will increase your interest in financial accounting by allowing you to personally choose the annual
report you will review

· Provides hands-on exposure to financial statements of real-world companies

· Emphasizes the importance of the notes to the financial statements

· Provides an opportunity to examine the application of procedures and methods discussed in your
accounting textbook

· Provide you the opportunity to work remotely with the members of your team

The Annual Report Project consists of four assignments and is designed to be a useful supplement for
undergraduate financial accounting courses. The following is a list of the topics covered in each Annual
Report Project assignment:

· General Information – The Company

· ARP 1 Company Information

· ARP 2 Overview of the Annual Report

· ARP 3 The Balance Sheet

· ARP 4 The Income Statement

General Information - The Company

Completed by Team

OBTAINING THE ANNUAL REPORT -You must email your instructor the name of the
company you select as no two teams may use the same company. Make sure your choice has
been approved before you begin.

Obtain the most recent annual report (full annual report, summary reports and 10-Ks are not acceptable)
of a Fortune 500 U.S. corporation (one of the top 500 and must be a U.S. Corporation) which is traded on
a national stock exchange (NYSE, NASDAQ). A useful resource is fortune.com. This site provides links
to the Web sites of Fortune 500 companies. www.fortune.com

Do not select a public utility, financial institution or brokerage firm, insurance company, co-
operative, government entity, Coke, Pepsi, Wal-Mart, Kmart, Target or Starbucks as a company
choice. In addition, please note that summary annual reports, 10-K or 10-Qs are not acceptable.
Your team must use a full annual report from a top Fortune 500 U.S. company.

1. Choosing a company
We have decided to analyze Costco's corporate annual report. There are 572 Costco’s in the United States
alone, making them one of the largest corporations in America.

2. Answer the following questions.

Company Name: Costco

Fortune 500 Ranking (Rank from 1 to 500): 10 (2021)

Was there a specific reason your group selected this particular company?

Some of us shop at Costco on a regular basis, and absolutely love them! They offer some of the better
deals you will find, especially when buying items in bulk. We are interested in analyzing their annual
report to see just how profitable they are, and what their future outlook looks to be.

GUIDANCE FOR Assignments 1, 2, 3 and 4:

Use complete sentences and well-organized paragraphs where needed.
Fill in the blanks, do not rewrite the document.
Each Assignment (1-4) is worth up to 20 points.
Have at least one person complete each section, list their name(s).
Have at least one additional person review each section, list their
name(s).
ASSIGNMENT 1 Completed by Corey Parkinson Reviewed by
Renee Thomas

1. Company Annual Report Date: December 9th, 2021

2. Information about the company:

What is the industry classification for the company (according to Fortune)?

According to Fortune Costco is classified as a General Merchandiser.. This means they sell a diverse
collection of products commonly found in retail stores.

Describe the nature of the company’s business.

Costco is a wholesaler, meaning they buy in bulk for discounted rates from manufacturers and
sell to retailers, often for a very good price. Costco also sells and manufactures many items from its own
brand, Kirkland. Costco requires memberships to shop with them, which cost around $60.00 in the year
2021. It seems like a steep price to pay, but customers who shop there often find that the savings on
merchandise is certainly worth it.

List the company’s primary products or services (use brand names where available).

In addition to the many familiar name brands Costco carries, they have their own merchandise
and goods under the name Kirkland. Kirkland has grown over the last decade, and their label can be
found on everything from shirts to various deli meats. Some of the many name brands Costco carries
include Motts, Mountain Dew, Starbucks and Duracell.

What is the address of the company’s corporate headquarters?

Costco’s headquarters are located in Washington, in the United States.

999 Lake Drive NE, Issaquah, WA 98027-2030.

What is the address of the company’s Web site?

https://www.costco.com/

List other countries in which the company operates:

The majority of Costco’s stores are found in the US. They have been building more across seas and in
various other countries. Countries they are found in besides the United States include, Canada, Mexico,
Japan, United Kingdom, South Korea, Taiwan, Australia, Spain, France, China and Iceland.

What were the company’s revenues for the most recent fiscal year (year and figure)?

According to Costco’s annual report, in the year 2021 on August 29th, at the end of the 52 week period,
their total revenue accounted for $195,929 million. This was an increase from $166,761 million in 2020,
which is around a 17.5% increase overall.

Who is the chairman of the company’s board of directors?

The chairman of Costco’s board of directors since 1988 is Hamilton E. James.

Who is the company’s CEO?

Costco’s CEO is W. Craig Jelinek, since the beginning of 2012.

3. Provide the following market data:

On what stock exchange is the company’s stock traded?

Costco stock is traded through the NASDAQ composite.

What is the ticker symbol for the company?

COST

What was the price of the company’s stock at the end of one day during this past week?

Price: $498.90 Date: 7/11/2022

What were the lowest and highest stock prices during the past year?

52-week low: $404.53 52-week high: $612.27

4. Obtain a recent (within 9 months) article about the company. Attach
a copy of the article
with your submission (not a link). Do not place article within this document.

Name of article:

Is Trending Stock Costco Wholesale Corporation (COST) a buy now?

Source of article (name of magazine or newspaper, date, page numbers):

Nasdaq

https://www.nasdaq.com/articles/is-trending-stock-costco-wholesale-corporation-cost-a-buy-now-0

Summarize the article and include an opinion on the article topic.

Over the last month, Costco’s stock has raised around 13.3%, compared to the Nasdaq only being up
1.17% in total. Additionally, Costco is not also classified under the Discount Store Industry, which has
gained 7.7% in total over the past month. Costco is projected to have an earnings per share (EPS) of
around $4.07 this quarter. During the current quarter, Costco’s sales have netted around $70.6 billion
indicating a year over year change of 12.7%. Given this information, Costco appears to be a good long
term hold, especially since they are out doing other companies in the sector despite the volatile market
conditions. Being named in the Discount Store Industry, they may see new customers as everyone is
searching for where they can save money right now. They have high earnings per share, and are
statistically moving in the right direction as sales are up from the year prior. Costco has proven to be one
of the more successful businesses in the entire United States, and it looks like it will remain this way into
the future.

Use complete sentences, well-organized paragraphs and an introduction and conclusion. Your summary
should be no fewer than 100 words in length and no more than 350 words. This is a summary, do not
rewrite the article. Make sure all important points are included in your summary as well as your opinion
or comment on the article.
ASSIGNMENT 2 Completed by Renee Thomas
Reviewed by Corey Parkinson

OVERVIEW OF ANNUAL REPORT

Annual Report Date: December 9, 2021

1. THE ANNUAL REPORT WILL CONTAIN SEVERAL SECTIONS:

a. FINANCIAL HIGHLIGHTS. This section provides a summary of selected financial results over a
number of years. You may find two schedules providing highlights: one brief summary near the front of
the annual report and a more detailed summary in the financial section.

This second schedule may be called Five-Year Summary of Selected Financial Data.

Note its page number here. Page(s) 20

b. THE CHAIRMAN’S LETTER. This letter provides the chairman’s overview of the past year and
developments which will affect the next year. You will review this letter below. Page(s) Index

c. THE COMPANY, ITS PRODUCTS, ITS EMPLOYEES. This section may contain a number of
color photographs and will highlight the products and accomplishments of the company. Pages 3-6
d. MANAGEMENT DISCUSSION AND ANALYSIS. This section discusses operating results,
industries in which the company operates, financing and investing activities, significant events, trends and
developments. Page(s) 21-23

e. THE FINANCIAL STATEMENTS AND NOTES TO THE FINANCIAL STATEMENTS.

This section contains the four financial statements introduced in chapter 1. The accompanying notes, as
indicated at the bottom of each of the above statements, are an integral part of the financial statements.
The financial statements cannot be understood without reference to the notes.

The financial statements and accompanying notes will be the focus of your Annual Report Project .

Income Statement Page 34

Balance Sheet Page 36

Statement of Stockholder’s Equity Page 37

Statement of Cash Flows Page 38

Notes to the financial statements:

Summary of significant accounting policies Note # 1 Page 39

Inventories Note # 1 Page 46

Plant assets Note # 6 Page 51

Long-term debt Note # 5 Page 50

Income taxes Note # 9 Page 55

Employee benefit plans Note # 1 Page 46

Commitments and contingencies Note # 11 Page 58

f. MANAGEMENT REPORT ON INTERNAL CONTROL Page 63

g. THE INDEPENDENT AUDITOR’S REPORT:

REPORT ON INTERNAL CONTROL Page 33

● REPORT ON THE FINANCIAL STATEMENTS Page 31

2. REVIEW THE CHAIRMAN’S LETTER TO THE SHAREHOLDERS.

Summarize the major points made in the letter. Use complete sentences and well-organized
paragraphs, your summary should be no less than 100 words and no more than 350 words in length.

Page(s) on which letter appears (make sure it matches the page number listed above): Index

Costco is committed to efforts around social and environmental issues. Regarding diversity and inclusion,
we have increased our efforts to expand the recruitment candidate pool and developed a library of
resources and training for all levels of employees in order to foster an environment that supports and
encourages open dialogue and communication. Regarding the environment, Costco's continuing work on
initiatives aligned with the Global Climate Action Plan, the Global Forest Conservation Commitment and
UN Sustainable Development Goals, which can be found on our website. We recognize that continuing to
address Costco's social and environmental impact is both a business imperative and the right thing to do,
and we remain committed to these efforts. Despite ongoing pandemic challenges, we had another strong
year in fiscal 2021. Net sales for the 52-week fiscal year totaled $192 billion, an increase of 18%, with a
comparable sales increase of 16%. Net income for the 52-week fiscal year was $5 billion, or $11.27 per
diluted share, an increase of 25%. Revenue from membership fees increased 9% to $3.9 billion. In
December 2020, we paid a special cash dividend of $10 per share or $4.4 billion. The special dividend
was the fourth in eight years, which was in addition to a 13% increase in the regular dividend approved in
April 2021.

Locate the management report(s) and the independent auditor’s report(s). Page(s) 21-33

Answer the following questions.

a) Who is responsible for the preparation and integrity of the financial statements?

The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
b) Does the company maintain a system of internal controls? Why?

A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could
have a material effect on the financial statements

Summarize their system of internal controls: Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

c) Does the company have an audit committee? Yes

What is its purpose of the audit committee?

An audit committee is a committee of an organization's board of directors. The primary

purpose of a company's audit committee is to provide oversight of the financial
reporting process, the audit process, the company's system of internal controls and
compliance with laws and regulations
d) What is the name of the independent public accountant (auditor)?

/s/ KPMG LLP We have served as the Company’s auditor since 2002. Seattle, Washington

(Note: There are two independent auditor’s reports: (1) a report on internal control and (2) a report on the
financial statements. The following questions relate to the financial statement audit.)

e) According to the auditor’s report on the financial statements, what is the auditor’s responsibility?

Assessing the actuarial models used by the Company for consistency with generally accepted actuarial
standards • Evaluating the Company’s ability to estimate self-insurance workers' compensation liabilities
by comparing its historical estimates with actual incurred losses and paid losses • Evaluating the above
listed assumptions underlying the Company’s actuarial estimates by developing an independent
expectation of the self-insurance workers' compensation liabilities and comparing them to the amounts
recorded by the Company.

f) According to the audit report, what is an audit?

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
g) Summarize the auditor’s opinion.

As discussed in Note 1 to the consolidated financial statements, the Company estimates its self insurance
liabilities by considering historical claims experience, demographic factors, severity factors, and other
actuarial assumptions. The estimated self-insurance liabilities as of August 29, 2021 were $1,257 million,
a portion of which related to workers’ compensation self-insurance liabilities for the United States
operations.

ASSIGNMENT 3 Completed byRenee Thomas Reviewed by

Corey Parkinson

THE BALANCE SHEET

1. Locate the company’s balance sheet.

Balance sheet date: August 29,2021

Page on which balance sheet appears: 36

2. The accounting equation is Assets = Liabilities + Stockholders’ Equity (remember that a balance
sheet balances). Replacing the words in the accounting equation with dollar amounts; give the
company’s accounting equation at the end of the current and prior years. If the amounts are listed
in millions, make sure you state this.

Assets = Liabilities + Equity

Date for This year: August 29, 2021

Equation figures: (A) $59,268 (M) = (L) $41,190 (M)+ (E) $18,078 (M)
Date for Last year: August 30, 2020

Equation figures: (A) $55,556 (M) =(L) $36,851 (M) +(E) $18,705

3. Calculate the company’s current ratio for both this year and the prior year.

Show your computations and then the result. Present the figure correctly; each ratio has a specific
format.

The Equation for current ratio is: Current Ratio = Current Assets / Current Liabilities

This year: = August 29, 2021 (show your work) = $29,505 (M) / $29,441 (M) (result)= 1:00

Late year: = August 30, 2020 (show your work) = $28,120 (M) / $24,844 (M) (result)= 1:13

Explain what information this ratio provides. (Hint: See the Financial Statement Analysis chapter of your
textbook.) Use complete sentences.

The Ratio expresses the relationship among selected items of the financial statement.. It also
shows us the mathematical relationship between one quantity and another.
The relationship is written in terms of a percentage, a rate, or a simple proportion. Ratios also
provide underlying conditions that may not be apparent from some individual financial
statements
Has the current ratio improved or worsened? Explain your answer and add your comments on the results.
Use complete sentences.

Upon doing research for Costco I used the numbers from 2020 and 2021. The Ratio analysis
was actually higher for August 30, 2020. With the 2021 ratio being 1:00 and 2020 being 1:13 it
leaves a 12.207% gap in between those years. Although 12% isn’t a really big gap, you wouldn’t
want it to go down when the objective is for it to rise.

4. Calculate the company’s working capital for both this year and the prior year.

Show your computations and then the result. Present the figure correctly; each ratio has a specific
format.

The Equation for working capital is: current assets-current liabilities

This year: = August 29, 2021 (show your work) = $29,505(M) - $29,441 (M) (result)= $64 (M)

Late year: = August 30, 2020 (show your work) = $28,120 (M) - $24,844 (M) (result)= $3,276 (M)

Explain what information this figure provides. Use complete sentences.

Working Capital is used to fund operations and meet short term obligations. When a company
has a lot of capital it has the grounds to continue to pay its employees and suppliers also they
will be able to pay taxes, interest payments, etc, even if they run into cash flow problems.
Has the result improved or worsened? Explain your answer and add your comments on the results. Use
complete sentences.

Researching Working Capital I found that in the year of 2021 Costco made $64 (M) in working
capital only $3,276 (M) working capital in the year of 2020. That’s a $3,212 (M) difference. I feel
that the working capital improved from August 30, 2020 to August 29, 2021.

5. Calculate the company’s debt to total assets ratio (also called total debt to equity) for both this
year and the prior year.

Show your computations and then the result. Present the figure correctly; each ratio has a specific
format.

The Equation for debt to total assets ratio is:= Total Debt / Total Assets

This year: = August 29, 2021 (show your work) = $6,692 (M) / $917 (M) (result)= 225.05%

Late year: = August 30, 2020(show your work) = $7,514 (M) / $1,028 (M) (result)= 300.67%
Explain what information this ratio provides. Use complete sentences.

The debt to total assets ratio describes how much of the company's assets are financed through
debt. Also known as debt ratio, it is closely watched by lenders and creditors. This happens
because they want to know whether the company owes more money than it possesses.

Has the ratio improved or worsened? Explain your answer and add your comments on the results. Use
complete sentences.

ASSIGNMENT 4 Completed by Elisia Wofford

Reviewed by

THE INCOME STATEMENT

1. Locate the company’s income statement.

Income Statement Date: August 29,2021

Page on which income statement appears: 34

What is the period covered by the income statement? August 30, 2020 through August 29th,2021

2. How does the net income for this year compare to last? What caused the change, use the notes to
the income statement to support your reason?

Costco’s net income increased. This change could have happened because there were far less restrictions,
the shut downs ended, and products were becoming more available in 2021.
3. What are the accounts (not totals, but accounts i.e. net income is a total, wage expense is an
account) that catch your attention compared to the previous year's income statement? List at least
3 and briefly explain why you selected each one. (Total Expenses or Net Income are not accounts,
they are totals or labels for totals.) Explanation must say more than the figure increased or
decreased, why would that be of interest?

1. Depreciation because I noticed the company has only reported depreciation once in the last five years.

2.Selling/General/Administrative expense, I chose the Selling/General/Administrative expense account

because I noticed a steady increase over the years.

3. Other/Unusual expense, I chose the account for Other/Unusual expense because it only appears in the
current year, and the previous year. I did notice a decrease in the expense compared to last year.

4. What could explain the changes from one year to another for each account selected in number 2?
Your answer explains the why it changed, not how much it changed. Your reasons must be
supported by data provided in the company’s annual report.

1.

2.

3.
5. Calculate the company’s Profit Margin for both this year and the prior year.

Show your computations and then the result. Present the figure correctly; each ratio has a specific
format.

The Equation for Profit Margin is: revenue-cost/ revenue

This year: = 195,929-170,684/195,929 = 12.88%

Late year: = 166,761-144,939/166,761= 13.09%

Explain what information this result provides. Use complete sentences.

Costco made 0.21% less in 2021 compared to 2020.

Has the result improved or worsened? Explain your answer and add your comments on the results. Use
complete sentences. Use the annual report notes to support your reason.
 Citations

Costco Annual Report,.Costco. (2021, December 9) https://investor.costco.com/static-files/0878117f-

7f3f-4a77-a9a5-c11a2534e94d

Costco Wholesale Company Profile. (n.d.). Fortune. https://fortune.com/company/costco/fortune500/

https://investor.costco.com/financial-information/fundamentals/income-statement