PROBLEM 13-9. Dell's MD&A—Follow Up to Problem 8 from Dell's Management Discussion and Analysis:

Below is an excerpt Gross margin decreased during fiscal 2002 across all geographies and product categories.

This erosion began in the fourth quarter of fiscal 2001, when the Company saw industry demand starting to decline and began an aggressive pricing strategy to gain share and maximize profitability that resulted in gross margin declining to 17.7 percent from 20.2 percent the previous year. Throughout fiscal 2002, the Company focused on stabilizing and improving net operating margins.

Gross margins in fiscal 2002 were roughly comparable to the fiscal 2001 exit rate.

The year-to-year decrease occurred primarily as a result of this intense price competition and the continued execution of the Company's strategy to drive profitable market share growth. Based on the industry, economic, and other factors discussed above, the Company currently expects that this gross margin environment will continue to be challenging, but the Company's intent is to focus on improving operating margins as the economy improves. Management believes that the strength of the Company's direct-to-customer business model, as well as its strong liquidity position, makes the Company better positioned than its competitors to profitably grow market share in the current business climate.

Required Compare your gross margin percentage calculations in Problem 8 to the statistics cited in the MD&A. Does the MD&A help you understand why the gross margin percentage changed between fiscal 2001 and fiscal 2002? In your own words (which may be much more clear than the verbiage in the MD&A) summarize what happened.

PROBLEMS 10 AND 11 Mandrake Motorcycles was started three years ago. The company manufactures and sells "classic" cycles similar in style to Harley Davidson and Indian motorcycles made in the late 1940s. The following financial information for the company relates to Problems 10 and 1 1.

Mandrake Motor Cycles December 3 1

, December 31, Balance Sheets 2005 2004 Assets Current assets:

Cash and cash equivalents $ 208,579 $ 399,339 Accounts receivable 157,450 162,618 Inventory 785,657 568,880 Other current assets 175,864 187,982 Total current assets 1,327,550 1,318,819 Property, plant and equipment, net 998,547 1,099,544 Total assets $2,326,097 $2,418,363 Liabilities and stockholders' equity Current liabilities:
:
Accounts payable Short-term debt payable Other current liabilities Total current liabilities Long-term debt Total liabilities Stockholders' equity:
Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity Mandrake Motor Cycles Income Statements Net sales Cost of goods sold Gross margin Operating expenses:
Selling expenses General and administrative expenses Total operating expenses Operating income Interest expense Income before taxes Income taxes Net income $ 243,785 $ 189,911 341,680 293,553 255,642 252,971 841,107 736,435 137,579 355,000 978,686 1,091,435 1,250,000 1,250,000 97,411 76,928 1,347,411 1,326,928 $2,326,097 $2,418,363 Year Ended Year Ended December 3 1 , December 3 1 , 2005 2004 $1,476,941 $1,576,941 912,386 1,103,859 564,555 473,082 295,388 201,564 192,002 185,460 487,390 387,024 77,165 86,058 45,652 70,248 31,513 15,810 11,030 5,534 $ 20,483 $ 10,276