Accounting Rules
Finance Drools
•
•CEt= CEt–1 + NIt–Divt, or Divt= NIt–DCEt
+
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t
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Div
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BC Accounting Analysis
•What are the accounting distortions in
BC’s financial statements?
•How can we correct them?
•When will the distortions reverse?
Fiscal Years Ended
Revenue:
Royalties and franchise related fees……. $43,603 $ 74,662 $115,510
Company stores……………………….. 40,916 51,566 83,950
Interest income………………………. 11,632 33,251 65,048
——- ——– ——–
Provision for relocation………………. 5,097 – –
——- ——– ——–
Total costs and expenses……………. 71,540 92,241 173,179
——- ——– ——–
Income From Operations…………………. 24,611 67,238 91,329
Total other income (expense)………… (4,161) (12,865) 23,854
——- ——– ——–
Income Before Income Taxes and Minority
Interest……………………………… 20,450 54,373 115,183
Income Taxes…………………………… 4,277 20,814 42,990
Minority Interest in (Earnings) of
Subsidiary……………………………. – – (5,235)
——- ——– ——–
Net Income…………………………….. $16,173 $ 33,559 $ 66,958
======= ======== ========
CONSOLIDATED BALANCE SHEETS
December 31, December29,
1995 1996
———— ———–
ASSETS
Goodwill, net……………………… – 190,439
Other Assets, net………………….. 5,195 58,087
———- ———-
Total assets……………… $1,073,877 $1,543,616
========== ==========
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deferred Income Taxes………………. 16,631 40,216
Other Noncurrent Liabilities………… 833 6,292
Minority Interest………………….. – 153,441
Stockholers’ Equity 716,831 935,840
———- ———-
Total liabilities and
BC As Reported
DECEMBER 31, DECEMBER 29,
1995 1996
– —————————————
Total number of financed area developers……………………. 15 14
Total number of financed area developer stores open………… 627 841
Balance sheet data:
Total gross assets………………………………….. $513,926 $ 640,534
Statement of operations data:
Gross revenue…………………………………… $ 491,341 $ 865,082
Income (loss) from continuing operations…………… (148,338) (156,505)
Statement of cash flows data:
Consolidating the ADs
Chicken Sales
Note Receivables
As Reported Consolidate AD Allowance
Revenue:
Royalties and franchise related fees.....
115510 0115510
Company stores.................................
83950 83950 83950
Interest income.................................
65048 065048
Area Developer Revenues:
Boston Market 865082
ENBC 109940
Total revenue................................ 264508 1058972 264508
BOSTON CHICKEN INC 1996 Income Statement Restated
Correcting for AD loans and losses
As Reported Consolidate
Allowance
Revenue:
115510 0115510
Company stores.................................. 83950 83950 83950
Interest income................................. 65048 065048
Costs and Expenses:
–173179 –173179 –173179
bad debt expense (.20x800519) 0 0 –160104
Boston Market Operating costs (rev+loss) –1021587
ENBC Operating costs (rev+loss) –150532
add back Royalties etc. 115510
As Reported Consolidate AD Allowance
Revenue:
Royalties and franchise related fees............ 115510 0115510
Company stores.................................. 83950 83950 83950
Interest income................................. 65048 065048
Area Developer Revenues:
Boston Market 865082
ENBC 109940
Boston Market Operating costs (rev+loss) –1021587
ENBC Operating costs (rev+loss) –150532
add back Royalties etc. 115510
add back Interest pd to BC 65048
Income From Operations............................ 91329 –105768 –68775
Other Income (Expense):
Income Taxes (37.3% ETR)……………………………….. 42990 –30554 –16755
Minority Interest in (Earnings) of Subsidiary..........................
–5235 –5235 –5235
Net Income........................................ 66958 –56595 –33400
Net Income Per Equiv shrs Outstdg 1.01 –0.85 –0.50
Equiv. shrs Outstdg 66501 66501 66501
BOSTON CHICKEN INC 1996 Income Statement Restated
Gain (+ equity plug) 38.2