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Comparative Analysis Case

Week 3
CA15-2 (Issuance of Stock for Land) Martin Corporation is planning to issue 3,000 shares of its own $10 par value common stock for two acres of land to be used as a building site.

Instructions

(a) What general rule should be applied to determine the amount at which the land should be recorded?
(b) Under what circumstances should this transaction be recorded at the fair value of the land?
(c) Under what circumstances should this transaction be recorded at the fair value of the stock issued?
(d) Assume Martin intentionally records this transaction at an amount greater than the fair value of the land and the stock. Discuss this situation.

CA17-6 ETHICS

(Fair Value) Addison Manufacturing holds a large portfolio of debt securities as an investment. The fair value of the portfolio is greater than its original cost, even though some debt securities have decreased in value. Sam Beresford, the financial vice president, and Angie Nielson, the controller, are near year-end in the process of classifying for the first time this securities portfolio in accordance with GAAP. Beresford wants to classify those securities that have increased in value during the period as trading securities in order to increase net income this year. He wants to classify all the securities that have decreased in value as held-to-maturity.
Nielson disagrees. She wants to classify those debt securities that have decreased in value as trading securities and those that have increased in value as held-to-maturity. She contends that the company is having a good earnings year and that recognizing the losses will help to smooth the income this year. As a result, the company will have built-in gains for future periods when the company may not be as profitable.
Instructions

Answer the following question.
(a) Will classifying the portfolio as each proposes actually have the effect on earnings that each says it will?

Week 4

Ch 19 Comparative Analysis Case

The Coca-Cola Company and PepsiCo, Inc.
The financial statements of Coca-Cola and PepsiCo are presented in Appendices C and D, respectively. The companies’ complete annual reports, including the notes to the financial statements, are available online.
Instructions

Use the companies’ financial information to answer the following questions.
(a) What are the amounts of Coca-Cola’s and PepsiCo’s provision for income taxes for the year 2014? Of each company’s 2014 provision for income taxes, what portion is current expense and what portion is deferred expense?
(b) What amount of cash was paid in 2014 for income taxes by Coca-Cola and by PepsiCo?
(c) What was the U.S. federal statutory tax rate in 2014? What was the effective tax rate in 2014 for Coca-Cola and PepsiCo? Why might their effective tax rates differ?

Week5

CA22-6 ETHICS

(Change in Estimate) Mike Crane is an audit senior of a large public accounting firm who has just been assigned to the Frost Corporation’s annual audit engagement. Frost has been a client of Crane’s firm for many years. Frost is a fast-growing business in the commercial construction industry. In reviewing the fixed asset ledger, Crane discovered a series of unusual accounting changes, in which the useful lives of assets, depreciated using the straight-line method, were substantially lowered near the midpoint of the original estimate. For example, the useful life of one dump truck was changed from 10 to 6 years during its fifth year of service. Upon further investigation, Mike was told by Kevin James, Frost’s accounting manager, “I don’t really see your problem. After all, it’s perfectly legal to change an accounting estimate. Besides, our CEO likes to see big earnings!”
Instructions

Answer the following questions.
(a) What are the ethical issues concerning Frost’s practice of changing the useful lives of fixed assets?
(b) Who could be harmed by Frost’s unusual accounting changes?
(c) What should Crane do in this situation?

C Specimen Financial Statements: The Coca-Cola Company

The Coca-Cola Company is the world’s largest beverage company. It owns or licenses and markets more than 500 nonalcoholic beverage brands, primarily sparkling beverages, but also a variety of still beverages such as waters, enhanced waters, juices and juice drinks, ready-to-drink teas and coffees, and energy and sports drinks. Finished beverage products bearing Coca-Cola trademarks, sold in the United States since 1886, are now available in more than 200 countries. To access Coca-Cola’s complete annual report, including notes to the financial statements, follow these steps:

1. Go to .

2. Select Financial Reports and Information and then click on 2014 Annual Report on Form 10-K.
3. The Notes to Consolidated Financial Statements begin on page 78.

THE COCA-COLA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, 2014  2013 2012
(In millions except per share data)

NET OPERATING REVENUES $ 45,998  $ 46,854 $ 48,017
Cost of goods sold 17,889  18,421 19,053
GROSS PROFIT 28,109  28,433 28,964
Selling, general and administrative expenses 17,218  17,310 17,738
Other operating charges 1,183  895 447
OPERATING INCOME 9,708  10,228 10,779
Interest income 594  534 471
Interest expense 483  463 397
Equity income (loss) — net 769  602 819
Other income (loss) — net (1,263) 576 137
INCOME BEFORE INCOME TAXES 9,325  11,477 11,809
Income taxes 2,201  2,851 2,723
CONSOLIDATED NET INCOME 7,124  8,626 9,086
Less: Net income attributable to noncontrolling interests 26  42 67
NET INCOME ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY $  7,098  $  8,584 $  9,019
BASIC NET INCOME PER SHARE1
$   1.62  $   1.94 $   2.00
DILUTED NET INCOME PER SHARE1
$   1.60  $   1.90 $   1.97
AVERAGE SHARES OUTSTANDING 4,387  4,434 4,504
Effect of dilutive securities 63  75 80
AVERAGE SHARES OUTSTANDING ASSUMING DILUTION 4,450  4,509 4,584
1Calculated based on net income attributable to shareowners of The Coca-Cola Company.
THE COCA-COLA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31, 2014  2013  2012
(In millions)
CONSOLIDATED NET INCOME $ 7,124  $ 8,626  $ 9,086
Other comprehensive income:
Net foreign currency translation adjustment (2,382) (1,187) (182)
Net gain (loss) on derivatives 357  151  99
Net unrealized gain (loss) on available-for-sale securities 714  (80) 178
Net change in pension and other benefit liabilities (1,039) 1,066  (668)
TOTAL COMPREHENSIVE INCOME 4,774  8,576  8,513
Less: Comprehensive income (loss) attributable to noncontrolling interests 21  39  105
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY $ 4,753  $ 8,537  $ 8,408
THE COCA-COLA COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, 2014  2013
(In millions except par value)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $  8,958  $ 10,414
Short-term investments 9,052  6,707
TOTAL CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS 18,010  17,121
Marketable securities 3,665  3,147
Trade accounts receivable, less allowances of $331 and $61, respectively 4,466  4,873
Inventories 3,100  3,277
Prepaid expenses and other assets 3,066  2,886
Assets held for sale 679  —
TOTAL CURRENT ASSETS 32,986  31,304
EQUITY METHOD INVESTMENTS 9,947  10,393
OTHER INVESTMENTS 3,678  1,119
OTHER ASSETS 4,407  4,661
PROPERTY, PLANT AND EQUIPMENT — net 14,633  14,967
TRADEMARKS WITH INDEFINITE LIVES 6,533  6,744
BOTTLERS’ FRANCHISE RIGHTS WITH INDEFINITE LIVES 6,689  7,415
GOODWILL 12,100  12,312
OTHER INTANGIBLE ASSETS 1,050  1,140
TOTAL ASSETS $ 92,023  $ 90,055
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $  9,234  $  9,577
Loans and notes payable 19,130  16,901
Current maturities of long-term debt 3,552  1,024
Accrued income taxes 400  309
Liabilities held for sale 58  —
TOTAL CURRENT LIABILITIES 32,374  27,811
LONG-TERM DEBT 19,063  19,154
OTHER LIABILITIES 4,389  3,498
DEFERRED INCOME TAXES 5,636  6,152
THE COCA-COLA COMPANY SHAREOWNERS’ EQUITY
Common stock, $0.25 par value; Authorized — 11,200 shares;
Issued — 7,040 and 7,040 shares, respectively 1,760  1,760
Capital surplus 13,154  12,276
Reinvested earnings 63,408  61,660
Accumulated other comprehensive income (loss) (5,777) (3,432)
Treasury stock, at cost — 2,674 and 2,638 shares, respectively (42,225) (39,091)
EQUITY ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY 30,320  33,173
EQUITY ATTRIBUTABLE TO NONCONTROLLING INTERESTS 241  267
TOTAL EQUITY 30,561  33,440
TOTAL LIABILITIES AND EQUITY $ 92,023  $ 90,055
THE COCA-COLA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 2014  2013  2012
(In millions)
OPERATING ACTIVITIES
Consolidated net income $  7,124  $  8,626  $  9,086
Depreciation and amortization 1,976  1,977  1,982
Stock-based compensation expense 209  227  259
Deferred income taxes (40) 648  632
Equity (income) loss — net of dividends (371) (201) (426)
Foreign currency adjustments 415  168  (130)
Significant (gains) losses on sales of assets — net 831  (670) (98)
Other operating charges 761  465  166
Other items 149  234  254
Net change in operating assets and liabilities (439) (932) (1,080)
Net cash provided by operating activities 10,615  10,542  10,645
INVESTING ACTIVITIES
Purchases of investments (17,800) (14,782) (14,824)
Proceeds from disposals of investments 12,986  12,791  7,791
Acquisitions of businesses, equity method investments and nonmarketable securities (389) (353) (1,486)
Proceeds from disposals of businesses, equity method investments and nonmarketable securities 148  872  20
Purchases of property, plant and equipment (2,406) (2,550) (2,780)
Proceeds from disposals of property, plant and equipment 223  111  143
Other investing activities (268) (303) (268)
Net cash provided by (used in) investing activities (7,506) (4,214) (11,404)
FINANCING ACTIVITIES
Issuances of debt 41,674  43,425  42,791
Payments of debt (36,962) (38,714) (38,573)
Issuances of stock 1,532  1,328  1,489
Purchases of stock for treasury (4,162) (4,832) (4,559)
Dividends (5,350) (4,969) (4,595)
Other financing activities (363) 17  100
Net cash provided by (used in) financing activities (3,631) (3,745) (3,347)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (934) (611) (255)
CASH AND CASH EQUIVALENTS
Net increase (decrease) during the year (1,456) 1,972  (4,361)
Balance at beginning of year 10,414  8,442  12,803
Balance at end of year $  8,958  $ 10,414  $  8,442
THE COCA-COLA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREOWNERS’ EQUITY
Year Ended December 31, 2014  2013  2012
(In millions except per share data)
EQUITY ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY NUMBER OF COMMON SHARES OUTSTANDING
Balance at beginning of year 4,402  4,469  4,526
Purchases of treasury stock (98) (121) (121)
Treasury stock issued to employees related to stock compensation plans 62  54  64
Balance at end of year 4,366  4,402  4,469
COMMON STOCK $  1,760  $  1,760  $  1,760
CAPITAL SURPLUS
Balance at beginning of year 12,276  11,379  10,332
Stock issued to employees related to stock compensation plans 526  569  640
Tax benefit (charge) from stock compensation plans 169  144  144
Stock-based compensation 209  227  259
Other activities (26) (43) 4
Balance at end of year 13,154  12,276  11,379
REINVESTED EARNINGS
Balance at beginning of year 61,660  58,045  53,621
Net income attributable to shareowners of The Coca-Cola Company 7,098  8,584  9,019
Dividends (per share — $1.22, $1.12 and $1.02 in 2014, 2013 and 2012, respectively) (5,350) (4,969) (4,595)
Balance at end of year 63,408  61,660  58,045
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance at beginning of year (3,432) (3,385) (2,774)
Net other comprehensive income (loss) (2,345) (47) (611)
Balance at end of year (5,777) (3,432) (3,385)
TREASURY STOCK
Balance at beginning of year (39,091) (35,009) (31,304)
Stock issued to employees related to stock compensation plans 891  745  786
Purchases of treasury stock (4,025) (4,827) (4,491)
Balance at end of year (42,225) (39,091) (35,009)
TOTAL EQUITY ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY $ 30,320  $ 33,173 $ 32,790
EQUITY ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Balance at beginning of year $    267  $   378  $   286
Net income attributable to noncontrolling interests 26  42  67
Net foreign currency translation adjustment (5) (3) 38
Dividends paid to noncontrolling interests (25) (58) (48)
Acquisition of interests held by noncontrolling owners —  (34) (15)
Contributions by noncontrolling interests —  6  —
Business combinations (22) 25  50
Deconsolidation of certain entities —  (89) —
TOTAL EQUITY ATTRIBUTABLE TO NONCONTROLLING INTERESTS $   241  $   267  $   378

DSpecimen Financial Statements: PepsiCo, Inc.
Pepsico, Inc. is a leading global food and beverage company with a complementary portfolio of enjoyable brands, including Frito-Lay, Gatorade, Pepsi-Cola, Quaker, and Tropicana. Through its operations, authorized bottlers, contract manufacturers, and other third parties, PepsiCo makes, markets, distributes, and sells a wide variety of convenient and enjoyable beverages, foods, and snacks, serving customers and consumers in more than 200 countries and territories. To access PepsiCo’s complete annual report, including notes to the financial statements, follow these steps:
1. Go to .
2. Select SEC Filings and then the 10K, dated 2/12/2015 (select the pdf version).
3. Select Entire document.
4. The Notes to Consolidated Financial Statements begin on page 73.

1. Consolidated Statement of Income
2. PepsiCo, Inc. and Subsidiaries
3. Fiscal years ended December 27, 2014, December 28, 2013 and December 29, 2012
4. (in millions except per share amounts

1. Consolidated Statement of Comprehensive Income
2. PepsiCo, Inc. and Subsidiaries
3. Fiscal years ended December 27, 2014, December 28, 2013 and December 29, 2012
4. (in millions)

1. Consolidated Statement of Cash Flows
2. PepsiCo, Inc. and Subsidiaries
3. Fiscal years ended December 27, 2014, December 28, 2013 and December 29, 2012
4. (in millions)

1. Consolidated Balance Sheet
2. PepsiCo, Inc. and Subsidiaries
3. December 27, 2014 and December 28, 2013
4. (in millions except per share amounts)

1. Consolidated Statement of Equity
2. PepsiCo, Inc. and Subsidiaries
3. Fiscal years ended December 27, 2014, December 28, 2013 and December 29, 2012
4. (in millions)

Last Updated on December 16, 2019

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