Question

In their 2016 Annual Report, Under Armour Inc. disclosed the following in Note 2 (p. 65):

Accrued Expenses

At December 31, 2016, accrued expenses primarily included $60.8 million and $24.7 million of accrued compensation and benefits and marketing expenses, respectively. At December 31, 2015, accrued expenses primarily included $63.8 million and $17.8 million of accrued compensation and benefits and marketing expenses, respectively.

1. Prepare journal entries representative of the two adjusting entries recorded by Under Armour, Inc. for compensation and marketing expenses at December 31, 2016. Indicate the impact (é = increase, or ê = decrease) of the entries on the balance sheet and income statement categories.

Assume that in 2017, Under Armour, Inc. paid the compensation and marketing expenses accrued at the end of 2016. Prepare summary journal entries representing payment of the accrued expenses. Indicate the impact (é = increase, or ê = decrease) of the entries on the balance sheet and income statement categories.

DATE

ACCOUNT NAME

DEBIT

CREDIT

BALANCE SHEET

INCOME STMT

A

=

L

+

Eq

R

-

Ex

12/31/16

12/31/16

2017

2017

2. If Under Armour, Inc. did not record the adjusting entries above at year end, what would their net income have been for 2016?

3. If Under Armour, Inc. did not record the adjusting entries at year end, what would the effect have been on their current ratio for 2016?

4. Why did Under Armour Inc. record the accrued expenses in 2016, even though it won’t pay the amounts until 2017?

Answer 1

In this problem, we have to record the Journal entries as well as we have to indicate for the increase or decrease on the balance sheet and income statement categories.   

     BALANCE SHEET INCOME STATEMENT

DATE	ACCOUNT NAME	DEBIT	CREDIT	ASSETS	=	LIABILITIES	+	EQUITY	REVENUE	-	EXPENSES
12/31/16	Compensation & Benefits Expenses	60.8 M						Decrease			Increase
	Compensation & Benefits Payable		60.8 M			Increase
12/31/16	Marketing Expenses	24.7 M						Decrease			Increase
	Marketing Expenses Payable		24.7 M			Increase
2017	Cash	60.8 M		Decrease
	Compensation & Benefits Payable		60.8 M			Decrease
2017	Cash	24.7 M
	Marketing Expenses Payable		24.7 M	Decrease		Decrease

Part 2)

We have to Calculate Net Income

Formula to Calculate Net Income = Revenue - Expenses

Part 3)

Calculate Current Ratio

Formula to Calculate Current Ratio = Current Assets / Current Liabilities

THANK YOU

HAVE A NICE DAY AHEAD