Accounting Principles: The Ultimate Guide

Question 1

Each company seems to be able to pay for its current obligations. This is because after all the expenses on their part, both companies are still able to have some net income after tax. This shows that there is an excess after paying for all their obligations.

Question 2

Johnson & Johnson is financed through borrowing. This is because an amount of their expenses goes towards borrowing. This suggests that the company could be using bonds as a method of financing. Nonetheless, the amount of interest charged is quite little compared to the earnings, suggesting that the company could also be using common stock as a method of financing. This allows the company to have additional money in its reach at significantly lower costs. This method is appropriate as the company operate at a significantly high profit.

Cosco Wholesale, on the other hand, also seems to be accruing some interest, which means that it could also be using borrowed income in the form of bonds. However, there is also income arising from specific actions such as membership fees contributing to income through preferred stock. This method is not right for the company as it exposes the company to adverse conditions as a result of net incomes that are relatively low for its expenses.

Question 3

Assets in publicly traded companies depreciate using the straight-line method. This is because it is one of the simplest methods of determining asset depreciation. Nonetheless, instances where the company is engaged in different activities, such as manufacturing, different methods can be used.

Question 4

Publicly traded companies can improve distribution efficiency through controlling inbound and outbound freight in a bid to reduce costs of excess goods storage. Moreover, Cosco can introduce incentive paying to distribution partners to improve distribution efficiency. Additionally, the simplification of processes in distribution management could reduce overhead costs associated with distribution.

Question 5

Regarding a code of ethics, the companies appear to have one. Johnson & Johnson have invested in research and development, meaning that there is sufficient funds set aside for ethical practice to be researched on and developed within the company. Furthermore, it is expected that if Cosco is taking members, there is a certain mode of operation and certain expectations from members that the company has. This makes the company a viable candidate to have a code of ethics.

Question 6

While Johnson & Johnson appears to be a smaller company in terms of earnings and size, it engages fewer costs in administration and daily running of the company as opposed to Cosco Wholesalers. Cosco seems to be enjoying large sales, but engages too many costs. As a result, it would be more prudent to invest in Johnson & Johnson, since a larger part of the net income is reserved for the stakeholders. This is not the case with Cosco.