The Coca-Cola Company and PepsiCo, Inc. The financial statementsof Coca-Cola and PepsiCo are presented in Appendices C and D,respectively. The companies' complete annual reports, including thenotes to the financial statements, are available online.Instructions Use the companies' financial information to answer thefollowing questions.
(a) What type of income format(s) is used by these twocompanies? Identify any differences in income statement formatbetween these two companies.
(b) What are the gross profits, operating profits, net incomes,and net incomes attributable to noncontrolling interests for thesetwo companies over the 3-year period 2012-2014? Which company hashad better financial results over this period of time?
(c) What income statement format do these two companies use toreport comprehensive income?
CA-4-2,p.190 Instructions Indicate the deficiencies in theincome statement presented above. Assume that the corporationdesires a single-step income statement. CA4-2 GROUPWORK (EarningsManagement) Bobek Inc. has recently reported steadily increasingincome. The company reported income of $20,000 in 2014, $25,000 in2015, and $30,000 in 2016. A number of market analysts haverecommended that investors buy the stock because they expect thesteady growth in income to continue. Bobek is approaching the endof its fiscal year in 2017, and it again appears to be a good year.However, it has not yet recorded warranty expense. Based on priorexperience, this year's warranty expense should be around $5,000,but some managers have approached the controller to suggest alarger, more conservative warranty expense should be recorded thisyear. Income before warranty expense is $43,000. Specifically, byrecording a $7,000 warranty accrual this year, Bobek could reportan increase in income for this year and still be in a position tocover its warranty costs in future years. Instructions
(a) What is earnings management?
(b) Assume income before warranty expense is $43,000 for both2017 and 2018 and that total warranty expense over the 2-yearperiod is $10,000. What is the effect of the proposed accounting in2017? In 2018?
(c) What is the appropriate accounting in this situation?
P18-2 (LO2,3,4) (Allocate Transaction Price, Modification ofContract) Refer to the Tablet Bundle A revenue arrangement inP18-1. In response to competitive pressure for Internet access forTablet Bundle A, after 2 years of the 3-year contract, TabletTailors offers a modified contract and extension incentive. Theextended contract services are similar to those provided in thefirst 2 years of the contract. Signing the extension and paying $90(which equals the standalone selling of the revised Internetservice package) extends access for 2 more years of Internetconnection. Forty Tablet Bundle A customers sign up for this offer.Instructions
(a) Prepare the journal entries when the contract is signed onJanuary 2, 2019, for the 40 extended contracts. Assume themodification does not result in a separate performance obligation.(b) Prepare the journal entries on December 31, 2019, for the 40extended contracts (the first year of the revised 3-yearcontract).
P18-3 (LO2,3,4) (Allocate Transaction Price, Discounts, TimeValue) Grill Master Company sells total outdoor grilling solutions,providing gas and charcoal grills, accessories, and installationservices for custom patio grilling stations. Instructions Respondto the requirements related to the following independent revenuearrangements for Grill Master products and services.
(a) Grill Master offers contract GM205, which is comprised of afree-standing gas grill for small patio use plus installation to acustomer's gas line for a total price $800. On a standalone basis,the grill sells for $700 (cost $425), and Grill Master estimatesthat the standalone selling price of the installation service(based on cost-plus estimation) is $150. (The selling of the grilland the installation services should be considered two performanceobligations.) Grill Master signed 10 GM205 contracts on April 20,2017, and customers paid the contract price in cash. The grillswere delivered and installed on May 15, 2017. Prepare journalentries for Grill Master for GM205 in April and May 2017.
(b) The State of Kentucky is planning major renovations in itsparks during 2017 and enters into a contract with Grill Master topurchase 400 durable, easy maintenance, standard charcoal grillsduring 2017. The grills are priced at $200 each (with a cost of$160 each), and Grill Master provides a 6% volume discount ifKentucky purchases at least 300 grills during 2017. On April 17,2017, Grill Master delivered and received payment for 280 grills.Based on prior experience with the State of Kentucky renovationprojects, the delivery of this many grills makes it certain thatKentucky will meet the discount threshold. Prepare the journalentries for Grill Master for grills sold on April 17, 2017. Assumethe company records sales transaction net.
(c) Grill Master sells its specialty combination gas/wood-firedgrills to local restaurants. Each grill is sold for $1,000 (cost$550) on credit with terms 3/30, net/90. Prepare the journalentries for the sale of 20 grills on September 1, 2017, and uponpayment, assuming the customer paid on (1) September 25, 2017, and(2) October 15, 2017. Assume the company records sales net.
(d) On October 1, 2017, Grill Master sold one of its superdeluxe combination gas/charcoal grills to a local builder. Thebuilder plans to install it in one of its "Parade of Homes" houses.Grill Master accepted a 3-year, zero-interest-bearing note withface amount of $5,324. The grill has an inventory cost of $2,700.An interest rate of 10% is an appropriate market rate of interestfor this customer. Prepare the journal entries on October 1, 2017,and December 31, 2017.
The Coca-Cola Company and PepsiCo, Inc. The financial statementsof Coca-Cola and PepsiCo are presented in Appendices C and D,respectively. The companies' complete annual reports, including thenotes to the financial statements, are available online.Instructions Use the companies' financial information to answer thefollowing questions.
(a) What type of income format(s) is used by these twocompanies? Identify any differences in income statement formatbetween these two companies.
(b) What are the gross profits, operating profits, net incomes,and net incomes attributable to noncontrolling interests for thesetwo companies over the 3-year period 2012-2014? Which company hashad better financial results over this period of time?
(c) What income statement format do these two companies use toreport comprehensive income?
CA-4-2,p.190 Instructions Indicate the deficiencies in theincome statement presented above. Assume that the corporationdesires a single-step income statement. CA4-2 GROUPWORK (EarningsManagement) Bobek Inc. has recently reported steadily increasingincome. The company reported income of $20,000 in 2014, $25,000 in2015, and $30,000 in 2016. A number of market analysts haverecommended that investors buy the stock because they expect thesteady growth in income to continue. Bobek is approaching the endof its fiscal year in 2017, and it again appears to be a good year.However, it has not yet recorded warranty expense. Based on priorexperience, this year's warranty expense should be around $5,000,but some managers have approached the controller to suggest alarger, more conservative warranty expense should be recorded thisyear. Income before warranty expense is $43,000. Specifically, byrecording a $7,000 warranty accrual this year, Bobek could reportan increase in income for this year and still be in a position tocover its warranty costs in future years. Instructions
(a) What is earnings management?
(b) Assume income before warranty expense is $43,000 for both2017 and 2018 and that total warranty expense over the 2-yearperiod is $10,000. What is the effect of the proposed accounting in2017? In 2018?
(c) What is the appropriate accounting in this situation?
P18-2 (LO2,3,4) (Allocate Transaction Price, Modification ofContract) Refer to the Tablet Bundle A revenue arrangement inP18-1. In response to competitive pressure for Internet access forTablet Bundle A, after 2 years of the 3-year contract, TabletTailors offers a modified contract and extension incentive. Theextended contract services are similar to those provided in thefirst 2 years of the contract. Signing the extension and paying $90(which equals the standalone selling of the revised Internetservice package) extends access for 2 more years of Internetconnection. Forty Tablet Bundle A customers sign up for this offer.Instructions
(a) Prepare the journal entries when the contract is signed onJanuary 2, 2019, for the 40 extended contracts. Assume themodification does not result in a separate performance obligation.(b) Prepare the journal entries on December 31, 2019, for the 40extended contracts (the first year of the revised 3-yearcontract).
P18-3 (LO2,3,4) (Allocate Transaction Price, Discounts, TimeValue) Grill Master Company sells total outdoor grilling solutions,providing gas and charcoal grills, accessories, and installationservices for custom patio grilling stations. Instructions Respondto the requirements related to the following independent revenuearrangements for Grill Master products and services.
(a) Grill Master offers contract GM205, which is comprised of afree-standing gas grill for small patio use plus installation to acustomer's gas line for a total price $800. On a standalone basis,the grill sells for $700 (cost $425), and Grill Master estimatesthat the standalone selling price of the installation service(based on cost-plus estimation) is $150. (The selling of the grilland the installation services should be considered two performanceobligations.) Grill Master signed 10 GM205 contracts on April 20,2017, and customers paid the contract price in cash. The grillswere delivered and installed on May 15, 2017. Prepare journalentries for Grill Master for GM205 in April and May 2017.
(b) The State of Kentucky is planning major renovations in itsparks during 2017 and enters into a contract with Grill Master topurchase 400 durable, easy maintenance, standard charcoal grillsduring 2017. The grills are priced at $200 each (with a cost of$160 each), and Grill Master provides a 6% volume discount ifKentucky purchases at least 300 grills during 2017. On April 17,2017, Grill Master delivered and received payment for 280 grills.Based on prior experience with the State of Kentucky renovationprojects, the delivery of this many grills makes it certain thatKentucky will meet the discount threshold. Prepare the journalentries for Grill Master for grills sold on April 17, 2017. Assumethe company records sales transaction net.
(c) Grill Master sells its specialty combination gas/wood-firedgrills to local restaurants. Each grill is sold for $1,000 (cost$550) on credit with terms 3/30, net/90. Prepare the journalentries for the sale of 20 grills on September 1, 2017, and uponpayment, assuming the customer paid on (1) September 25, 2017, and(2) October 15, 2017. Assume the company records sales net.
(d) On October 1, 2017, Grill Master sold one of its superdeluxe combination gas/charcoal grills to a local builder. Thebuilder plans to install it in one of its "Parade of Homes" houses.Grill Master accepted a 3-year, zero-interest-bearing note withface amount of $5,324. The grill has an inventory cost of $2,700.An interest rate of 10% is an appropriate market rate of interestfor this customer. Prepare the journal entries on October 1, 2017,and December 31, 2017.
Related questions
Parson Company acquired an 80 percent interest in Syber Companyon January 1, 2017. Any portion of Syber's business fair value inexcess of its corresponding book value was assigned to trademarks.This intangible asset has subsequently undergone annualamortization based on a 15-year life. Over the past two years,regular intra-entity inventory sales transpired between the twocompanies. No payment has yet been made on the latest transfer. Alldividends are paid in the same period as declared.
The individual financial statements for the two companies aswell as consolidated totals for 2018 follow:
| Parson Company | Syber Company | Consolidated Totals | |||||||||
| Sales | $ | (980,000 | ) | $ | (780,000 | ) | $ | (1,604,000 | ) | ||
| Cost of goods sold | 590,000 | 490,000 | 937,000 | ||||||||
| Operating expenses | 136,000 | 154,000 | 292,500 | ||||||||
| Income of Syber | (101,800 | ) | 0 | 0 | |||||||
| Separate company net income | $ | (355,800 | ) | $ | (136,000 | ) | |||||
| Consolidated net income | $ | (374,500 | ) | ||||||||
| Net income attributable tononcontrolling interest | 18,700 | ||||||||||
| Net income attributable toParson Company | $ | (355,800 | ) | ||||||||
| Retained earnings, 1/1/18 | $ | (638,600 | ) | $ | (326,000 | ) | $ | (638,600 | ) | ||
| Net income (above) | (355,800 | ) | (136,000 | ) | (355,800 | ) | |||||
| Dividends declared | 67,000 | 48,000 | 67,000 | ||||||||
| Retained earnings, 12/31/18 | $ | (927,400 | ) | $ | (414,000 | ) | $ | (927,400 | ) | ||
| Cash and receivables | $ | 478,000 | $ | 98,000 | $ | 550,400 | |||||
| Inventory | 208,000 | 196,000 | 385,500 | ||||||||
| Investment in Syber Company | 443,400 | 0 | 0 | ||||||||
| Land, buildings, andequipment | 416,000 | 314,000 | 730,000 | ||||||||
| Trademarks | 0 | 0 | 32,500 | ||||||||
| Total assets | $ | 1,545,400 | $ | 608,000 | $ | 1,698,400 | |||||
| Liabilities | $ | (360,000 | ) | $ | (117,000 | ) | $ | (417,400 | ) | ||
| Common stock | (210,000 | ) | (77,000 | ) | (210,000 | ) | |||||
| Additional paid-in capital | (48,000 | ) | 0 | (48,000 | ) | ||||||
| Noncontrolling interest inSyber | 0 | 0 | (95,600 | ) | |||||||
| Retained earnings (above) | (927,400 | ) | (414,000 | ) | (927,400 | ) | |||||
| Total liabilities andequities | $ | (1,545,400 | ) | $ | (608,000 | ) | $ | (1,698,400 | ) | ||
i. With a tax rate of 40 percent, what income tax journal entryis recorded if the companies prepare a consolidated taxreturn?
j. With a tax rate of 40 percent, what income tax journal entry isrecorded if these two companies prepare separate tax returns?
(If no entry is required for a transaction/event, select "Nojournal entry required" in the first account field.)
