1800 Saudia
1-800 Contacts, Inc. was formed in 1995 as a
direct marketer of replacement contact
lenses. Since 2002, the firm has made acquisitions
of firms that manufacture, develop and
distribute contact lenses in Singapore and
the United Kingdom. Anticompetitive barriers
in the industry created by eye care practitioners
and contact lens manufacturers
resulted in 1-800 Contacts, Inc. investing
heavily in lobbying efforts that ultimately
resulted in Congress passing the Fairness
to Contact Lens Consumers Act, effective
February 4, 2004. Selected information from
1-800 Contacts, Inc.’s Form 10-K is given on
pages 81–86.
Required
1. Using the Consolidated Balance
Sheets for 1-800 Contacts, Inc. for the
years ended January 3, 2004 and
January 1, 2005, prepare a commonsize
balance sheet.
2. Which current asset is the most
significant?
3. To the extent possible analyze the
allowance for doubtful accounts
relative to accounts receivable and
net sales.
4. What types of inventories does 1-800
Contacts carry? Why? What inventory
method is used to account for the
inventories? Does this method reflect
current cost at year-end?
5. Based on the inventory valuation
method used, would you expect
1-800 Contacts to have tax savings
or pay more in taxes? Explain your
answer. (You do not need to do any
calculations.)
6. Which noncurrent asset categories are
the most significant? Are the relative
proportions of current and noncurrent
assets what you would expect for
a contact lens distributor? Explain.
7. Which two current liabilities are
the most significant? Which two
noncurrent liabilities are the most
significant? Are the relative
proportions of current and noncurrent
liabilities what you would
expect for a contact lens distributor?
Explain.
8. Discuss any significant changes in the
asset, liability, and equity structure of
1-800 Contacts.
9. Does 1-800 Contacts have commitments
and contingencies? If so, what
is the significance of these...
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