Real World Case 3–10
Requirement 3
a. Note 21 reports the following subsequent event:
On February 5, 2014, the Company entered into agreements with Green
Mountain Coffee Roasters, Inc. (“GMCR”), providing for the development
and introduction of the Company’s global brand portfolio for use in GMCR’s
forthcoming Keurig ColdTM at-home beverage system and the acquisition by
the Company of an approximate 10 percent equity position in GMCR. Under
b. The company’s auditor was Ernst and Young LLP. The firm rendered an
unqualified opinion on the company’s financial statements.
Requirement 4
a. Muhtar Kent is listed as Chairman of the Board and Chief Executive Officer.
b. The annual salary for Mr. Kent was $1,600,000. This does not include stock
Judgment Case 3–11
Comparative income for the first year of operations resulting from the two
alternative financing choices is illustrated below.
DEBT versus EQUITY
Comparative Income for Two Financing Alternatives
Alternative 1 Alternative 2
Income before interest and taxes $5,000,000 $5,000,000
Less: Interest -0- (1 ,600,000)*
We can see that Alternative 1 generated a higher net income. However, the
return on shareholders’ investment is actually higher for Alternative 2.
Alternative 2 generated a higher return for each dollar invested by
shareholders. This was made possible because the corporation was able to
generate income on borrowed funds at a higher rate than the cost of the debt. This
Analysis Case 3–12
The objective of this case is to motivate students to obtain hands-on
Analysis Case 3–13
The objectives of this case are to motivate students to obtain hands-on
familiarity with an actual annual report and to apply the techniques learned in the
Analysis Case 3–14
Requirement 1
The balance sheet includes: Current assets; Property and equipment,
Noncurrent assets of discontinued operations; Other noncurrent assets; and liability
Requirement 2
Requirement 3
Accrued and other current liabilities represent wages and benefits, gift card
Requirement 4
Disclosure notes explain or elaborate upon the data presented in the financial
statements themselves. They must include certain specific notes such as a
Requirement 5
Analysis Case 3–15
Requirement 1
Segment disclosures assist in analyzing and understanding financial
statements by permitting better assessment of past performance and future
Requirement 2
An operating segment is a component of an enterprise:
1. That engages in business activities from which it may earn revenues and
2. Whose operating results are regularly reviewed by the enterprise’s chief
Requirement 3
For areas determined to be reportable operating segments, the following
disclosures are required:
1. General information about the operating segment.
2. Information about segment profit or loss, including certain revenues and
Requirement 4
If Levens Co. prepares its segment disclosure according to IFRS, in addition
Ethics Case 3–16
Discussion should include these elements.
Facts:
The impact of following the controller’s suggestions would be to obscure
financial information by aggregating the financial data of geographic operations
and investments. Aggregation of data potentially hides the risks associated with
North African operations where political instability is especially high. Aggregation
Ethical Dilemma:
Should you, as staff accountant, challenge the controller’s combination of
Who is a#ected?
You, as a staff accountant
Controller and other managers
Other employees
Who benefits and who is injured:
Company management may benefit from aggregating the data by attracting
more investors to their company and obtaining more loans from creditors than
would be the case with more complete disclosure regarding the operations in Libya
Target Case
Requirement 1
Requirement 2
a. $14,130.
b. $26,132.= $40,262 − $14,130
Requirement 3
Requirement 4
Requirement 5
Target’s current ratio is greater than the industry average and indicates better
liquidity compared to the industry. Target’s debt ratio is less than the industry
Air France–KLM Case
Under U.S. GAAP, we present current assets and liabilities before long-term
assets and liabilities. IAS No. 1 doesn’t prescribe the format of the balance
sheet, but balance sheets prepared using IFRS often report long-term items first.