Page 1 Of 7: Account 607 Name Applied Case Assignment

Page 1 Of 7acct 607 Name Applied Case Assig

Answer the following questions based on the provided excerpts from a selection of greater Washington area public companies’ recent 10-Ks. Part I: Booz Allen Hamilton Holding Corporation (NYSE: BAH; McLean, VA) Founded in 1914, Booz Allen Hamilton describes itself as “a leading provider of management consulting, technology, and engineering services to the U.S. government in the defense, intelligence, and civil markets.†Booz Allen Hamilton Holding serves as the top-level holding company for the consolidated Booz Allen Hamilton U.S. government consulting business. Answer the following questions based on the Company’s Consolidated Balance Sheets for March 31, 2015 and 2014 (hereafter, FY15 and FY14), which are excerpted and presented on the next page: 1.

During FY15, the decreases in Class B, Class C, and Class E shares are because those shares were converted to Class A shares. Assume that the remaining increase in Class A share is due to new share issuances for cash. What journal entry would the Company have recorded for the issuance of those new shares? 2. There were no sales of Treasury Stock during FY15.

What was the average share price at which the Company repurchased additional Treasury Stock shares during FY15? 3. There were no usual transactions affecting the Company’s Retained Earnings during FY15. If Net Income for FY2015 was $232,569 thousand, what was the value of dividends declared during the year? ï€ ï€ ï€ ï€ EXCERPT FROM BOOZ ALLEN HAMILTON HOLDING CORPORATION’S K ACCT 607 Applied Case Assignment #7 (Chapter 10, 11) ï€ Continued Part II: Under Armour, Inc. (NYSE: UA; Baltimore, MD) 4. Incorporated in Maryland in 1996, Under Armour, Inc. describes itself as “developing, marketing and distributing branded performance apparel, footwear and accessories for men, women and youth.†On June 15, 2015, Under Armour announced the creation of a new class of non-voting common stock, the Class C common stock.

The press release stated that: Under Armour expects to issue Class C stock through a stock dividend to all existing holders of Under Armour's Class A and Class B common stock, which will have the same effect as a two-for-one stock split. Each holder of a share of Class A or Class B stock will receive one share of the new Class C stock. Do you agree or disagree that the effect of the Class C stock dividend will be the same as a two-for- one stock split? As an example, assume the transaction would have occurred on January 1, 2015. On the basis of the information on Under Armour’s Consolidated Balance Sheet for December 31, 2014 (excerpted and presented on the next page of this assignment), what journal entry would be required to record (a) a two-for-one stock split, and (b) the Class C stock dividend? (a) Two-for-one stock split: (b) Class C stock dividend: Do you agree or disagree that the effect of the Class C stock dividend will be the same as a two-for- one stock split?

EXCERPT FROM UNDER ARMOUR, INC.’S K ACCT 607 Applied Case Assignment #7 (Chapter 10, 11) ï€ Continued Part III: Lockheed Martin Corporation (NYSE: LMT; Bethesda, MD) Lockheed Martin Corporation describes itself as “a global security and aerospace company principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services,†with its principal customers being agencies of the U.S. Government. On the next two pages are Lockheed Martin’s Consolidated Statements of Earnings, Comprehensive Income, and Balance Sheets, along with the Long-Term Debt footnote, excerpted from the its -K. 5. What is the principal or face value of Lockheed Martin’s long-term debt?

6. (a) To what covenant(s) is Lockheed Martin subject under the terms of their revolving credit facility? (b) How is the covenant ratio described differently from what we might compute as part of the ROE decomposition? 7. The footnote states that “In April 2013, [Lockheed Martin] repaid $150 million of long-term notes with a fixed interest rate of 7.38% due to their scheduled maturities.†At the time of repayment, did the net carrying value of these long-term notes reflect at a premium, a discount, or par value? Explain. 8.

Has Lockheed Martin’s solvency improved or deteriorated in 2014 relative to 2013? Explain your response, and identify the primary cause for that change. EXCERPTS FROM LOCKHEED MARTIN CORPORATION’S K

Paper For Above instruction

The assignment prompts a comprehensive analysis of financial statements and corporate actions based on excerpts from three major U.S. companies: Booz Allen Hamilton, Under Armour, and Lockheed Martin. The objective is to interpret accounting transactions, evaluate stock splits and dividends, and assess long-term debt and solvency conditions. This analysis not only broadens understanding of corporate finance principles but also enhances skills in applying accounting concepts to real-world scenarios.

Introduction

The analysis of corporate financial statements provides crucial insights into a company's financial health, capital management, and strategic decisions. By examining Booz Allen Hamilton's share issuance, Under Armour's stock split and dividend, and Lockheed Martin's long-term debt and solvency status, we explore diverse aspects of corporate finance that are vital for managers, investors, and auditors alike. This paper systematically responds to each query, applying fundamental accounting and financial principles.

Part I: Booz Allen Hamilton's Share Transactions

During FY15, Booz Allen Hamilton experienced decreases in Class B, Class C, and Class E shares, attributed to conversions into Class A shares. The remaining increase in Class A shares was due to the issuance of new shares for cash. The relevant journal entry to record such issuance involves recognizing the cash received and increasing the common stock and additional paid-in capital accounts accordingly.

Assuming the company issued new shares at a specific price, the journal entry would be:

• Debit Cash (number of new shares x issuing price)
• Credit Common Stock (par value x number of shares issued)
• Credit Additional Paid-in Capital (difference between total cash received and par value)

This entry ensures accurate reflection of cash inflow and equity increase. Since the problem does not specify the issuance price, general principles suffice: cash increases, with corresponding increases in stock equity accounts.

Regarding treasury stock, no sales occurred in FY15, so the average repurchase price is derived from the total amount spent on repurchases divided by the number of shares repurchased. This aggregation provides insight into the company's timing and strategy for stock repurchases.

Lastly, with net income at \$232,569 thousand and no other transactions affecting retained earnings, dividends declared are calculated via:

Dividends = Net Income - Change in Retained Earnings. Since no change occurred outside net income, dividends equal net income minus any increase in retained earnings through earnings retention. If all earnings were retained, dividends would be zero; otherwise, the specific change in retained earnings determines the dividends declared.

Part II: Under Armour's Stock Transactions and Dividends

Under Armour's announcement to issue a new class of non-voting stock (Class C) as a stock dividend aiming to double the number of outstanding shares aligns with a stock split's effect. The company states that each shareholder holding Class A or B shares will receive one share of Class C, effectively doubling total shares.

In the case of a traditional two-for-one stock split, the number of shares outstanding doubles, par value per share is halved, and the company's market capitalization remains constant. The journal entry for a stock split is generally a memorandum note; no journal entry is required because it merely adjusts the par value per share and the number of shares without affecting total assets or equity.

For a stock dividend, the journal entry involves transferring an amount from retained earnings to common stock and additional paid-in capital, reflecting the value of the new shares issued. The key difference is that a stock dividend's accounting impacts retained earnings, unlike a split.

Given the company's assertion that issuing Class C shares as a dividend on Class A and B shares mimics a two-for-one split, the accounting treatment and effect on equity accounts are similar, although formally, one is a dividend, and the other is a split. Thus, the effect is comparable in total shares outstanding but differs in how the transaction is recorded in financial statements.

Part III: Lockheed Martin’s Long-Term Debt and Solvency

Lockheed Martin's long-term debt's principal or face value refers to the amount payable at maturity, as stated in its debt agreements. Based on the excerpt, this amount is typically disclosed in the notes to financial statements, usually identified clearly. If, for example, the notes specify a total of \$X billion, that is the principal value.

The covenant restrictions under the revolving credit facility often include ratios such as debt-to-equity, interest coverage, or specific financial tests. These covenants protect lenders by limiting the borrower's leverage and ensuring liquidity. For example, Lockheed Martin might be restricted from exceeding a debt-to-equity ratio of 2:1.

The covenant ratio differs from the ROE decomposition in that it involves specific contractual terms designed to limit leverage or ensure certain financial conditions, whereas ROE decomposition analyzes profitability, efficiency, and leverage ratios for internal performance evaluation.

The repayment of \$150 million of long-term notes with a fixed interest rate of 7.38% at par value suggests the notes were issued at face value, with no premium or discount. A premium occurs if the notes are issued above face value, a discount if below, and par if exactly at face value, which appears to be the case here.

Assessing solvency involves comparing assets and liabilities over the years. An improvement indicates higher surplus of assets over liabilities, improved debt ratios, or enhanced cash flow. Deterioration occurs when liabilities increase faster than assets or when debt ratios worsen. In Lockheed Martin’s case, if total liabilities increased or debt ratios worsened in 2014 relative to 2013, solvency has deteriorated, primarily due to increased leverage or decreased asset quality.

Conclusion

This analysis underscores the importance of understanding specific corporate actions and financial statement components. Share issuance strategies, stock splits versus dividends, and long-term debt covenants and repayment reflect a company's capital management and financial health. Applying these principles to real-world data from Booz Allen Hamilton, Under Armour, and Lockheed Martin reveals vital insights into their strategic and financial positioning.

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