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Financial Statement Analysis Case Wal-Mart

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Financial Statement Analysis Case
Instructions (a) | Discuss the expected effect on income (1) in the year that Wal‐Mart makes the changes in its revenue recognition policy, and (2) in the years following the change. |

The SAB deals with various revenue recognition issues, several of which are common within the retail industry. As a result of the issuance of SAB 101, the company changed its method of accounting for SAM’S CLUBS and for Layaway transaction policy both of those are the most representative and the most affected by SAB101.
During the fourth quarter of fiscal 2000, the Company adopted changes in its method of accounting for membership revenue recognition. The implementation of this change was accounted for as a change in accounting principle and applied cumulatively as if the change occurred at the beginning of this fiscal year and as if it was recorded in the first quarter. The change results in a one-time non-cash reduction to the Company’s earnings of approximately $0.04 per share. After the change, basic earnings per share and diluted earnings per share for the fiscal year were $1.21 and$1.20 per share, respectively.
Previously the company had recognized membership fee revenues when received. Under the new accounting method the company recognizes membership fee revenues over the term of the membership, which is twelve months. The company recorded a non-cash charge of $198 million, or $0.4 per share, to reflect the cumulative effect of the accounting change as of the beginning of the fiscal year. The effect of this change on the year ended January 31, 2000, before the cumulative effect of the accounting change was to decrease net income $12 million, or almost $0.1 per share. If the new accounting method had been in effect in fiscal year 1999.
Net income would have been $4393 million, or $ 0.98 per share.
The following table...

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