Question

Analyzing, Forecasting, and Interpreting Both Income Statement and Balance Sheet
Following are the income statements and balance sheets of Amazon.com Inc.

AMAZON.COM INC.
Consolidated Statement of Operations
$ millions		Dec. 31, 2015	Dec. 31, 2014
Net product sales		$79,268	$70,080
Net service sales		27,738	18,908
Total net sales		107,006	88,988
Operating expenses
Cost of sales		71,651	62,752
Fulfillment		13,410	10,766
Marketing		5,254	4,332
Technology and content		12,540	9,275
General and administrative		1,747	1,552
Other operating expense (income), net		171	133
Total operating expenses		104,773	88,810
Income from operations		2,233	178
Interest income		50	39
Interest expense		(459)	(210)
Other income (expense), net		(256)	(118)
Total non-operating (expense)		(665)	(289)
Income (loss) before income taxes		1,568	(111)
Provision for income taxes		(950)	(167)
Equity-method investment activity, net of tax		(22)	37
Net income (loss)		$596	$(241)

AMAZON.COM INC.
Consolidated Balance Sheets
In millions, except par value		Dec. 31, 2015	Dec. 31, 2014
Current Assets
Cash and cash equivalents		$15,890	$14,557
Marketable securities		3,918	2,859
Inventories		10,243	8,299
Accounts receivable, net and other		6,423	5,612
Total current assets		36,474	31,327
Property and equipment, net		21,838	16,967
Goodwill		3,759	3,319
Other assets		3,373	2,892
Total assets		$65,444	$54,505
Current Liabilities
Accounts payable		$20,397	$16,459
Accrued expenses and other		10,384	9,807
Unearned revenue		3,118	1,823
Total current liabilities		33,899	28,089
Long-term debt		8,235	8,265
Other long-term liabilities		9,926	7,410
Stockholders' equity
Preferred stock, $0.01 par value: Authorized shares-500
Issued and outstanding shares-none		0	0
Common stock, $0.01 par value: Authorized shares-5,000
Issued shares-494 and 488 Outstanding shares-471 and 465		5	5
Treasury stock, at cost		(1,837)	(1,837)
Additional paid-in capital		13,394	11,135
Accumulated other comprehensive loss		(723)	(511)
Retained earnings		2,545	1,949
Total stockholders' equity		13,384	10,741
Total liabilities and shareholders' equity		$65,444	$54,505

Forecast Amazon's 2016 income statement using the forecast assumptions, which are expressed as a percentage of total net sales unless otherwise indicated ($ in millions).

Net product sales growth	15%
Net service sales growth	40%
Cost of sales	67.0%
Fulfillment	12.5%
Marketing	4.9%
Technology and content	11.7%
General and administrative	1.6%
Interest income	$60
Interest expense	$520
Income tax expense (% pretax income)	38%

• Forecast no change in the following income statement accounts: Other operating expense, net, Other expense, net; and Equity method investment activity.

• Do not use negative signs with any of your answers in the income statement.

AMAZON.COM INC.
Forecated Income Statement
$ millions		2016
Net product sales		91,158
Net service sales		38833
Total net sales		129991
Operating expenses
Cost of sales		87094
Fulfillment		16249
Marketing		6370
Technology and content		15209
General and administrative		2080
Other operating expense, net		171
Total operating expenses		127173
Income from operations		2818
Interest income		60
Interest expense		-520
Otherexpense, net		-256
Total non-operating income		-716
Income (loss) before income taxes		2102
Provision for income taxes		-799
Equity-method investment activity, net of tax		-22
Net income (loss)		1281

Forecast Amazon's 2016 balance sheet using the forecast assumptions, which are expressed as a percentage of total net sales unless otherwise indicated ($ in millions).

Inventories	9.6%
Accounts receivable, net and other	6.0%
Other assets	3.2%
Accounts payable	19.1%
Accrued expenses and other	9.7%
Unearned revenue	2.9%
Other long-term liabilities	9.3%

• Forecast no change in the following balance sheet accouts: Marketable securities, Goodwill, Preferred stock, Common stock, Treasury stock, APIC, and AOCL.
• Assume that in 2016, CAPEX will be 4.3% of Sales and depreciation expense will be 28.9% of the PPE balance at the start of the year.
• The company will repay $238 million of long-term debt in 2016.
• The company pays no dividends.

• Round answers to the nearest whole number.

• Do not use negative signs with any of your answers in the balance sheet.

AMAZON.COM INC.
Forecasted Balance Sheet
in millions		2016
Current Assets
Cash and cash equivalents		Answer
Marketable securities		Answer
Inventories		Answer
Accounts receivable, net and other		Answer
Total current assets		Answer
Property and equipment, net		Answer
Goodwill		Answer
Other assets		Answer
Total assets		Answer
Current Liabilities
Accounts payable		Answer
Accrued expenses and other		Answer
Unearned revenue		Answer
Total current liabilities		Answer
Long-term debt		Answer
Other long-term liabilities		Answer
Total liabilities		Answer
Stockholders' equity
Preferred stock, $0.01 par value: Authorized shares-500
Issued and outstanding shares-none		Answer
Common stock, $0.01 par value: Authorized shares-5,000
Issued shares-494 and 488 Outstanding shares-471 and 465		Answer
Treasury stock, at cost		Answer
Additional paid-in capital		Answer
Accumulated other comprehensive loss		Answer
Retained earnings		Answer
Total stockholders' equity		Answer
Total liabilities and shareholders' equity		Answer

b. What does the forecasted adjustment to balance the accounting equation from part a reveal to us about the forecasted cash balance and related financing needs of the company? Explain. Check and choose the best answer:

- Amazon will generate sufficient cash for the coming year. The cash balance decreases fairly significantly, we could adjust marketable securities, increasing total assets.

- Amazon will generate sufficient cash for the coming year. The cash balance increases fairly significantly, we could adjust marketable securities, leaving total assets unchanged.

- Amazon will not generate sufficient cash for the coming year. The cash balance decreases fairly significantly, we could adjust marketable securities, leaving total assets unchanged.

- Amazon will not generate sufficient cash for the coming year. The cash balance decreases fairly significantly, we could adjust short-term debt, increasing total assets unchanged.

Answer 1