Accounting Chapter 22 The Amendments Include New Alternatives For Measuring

standard will be dependent on the specific facts and circumstances of

future individual impairments, if any.

In March 2017, the FASB issued ASU 2017-07, “Compensation-Retirement

Benefits: Improving the Presentation of Net Periodic Pension Cost and Net

Periodic Postretirement Benefit Cost (Topic 715).” This guidance requires

retrospectively no later than July 1, 2018. The adoption of ASU 2017-07 is

not expected to have a material impact on our Consolidated Financial

Statements. We currently classify all net periodic pension costs within

(b) Use of Estimates

Preparation of financial statements in conformity with accounting

principles generally accepted in the United States of America (U.S. GAAP)

requires management to make estimates and assumptions that affect the

amounts reported in the Consolidated Financial Statements and

accompanying disclosures. These estimates are based on management’s

best knowledge of current events and actions the Company may undertake

in the future. Estimates are used in accounting for, among other items,

COMPARATIVE ANALYSIS CASE

THE COCA-COLA COMPANY VS. PEPSICO, INC.

(a) and (c) for Coca-Cola Company:

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

In May 2014, the Financial Accounting Standards Board (“FASB”) issued

Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts

with Customers, which will replace most existing revenue recognition

guidance in U.S. GAAP and is intended to improve and converge with

The Company will adopt ASU 2014-09 and its amendments on a modified

retrospective basis. We have closely assessed the new guidance, including

the interpretations by the FASB Transition Resource Group for Revenue

Recognition, throughout 2017. We have concluded that ASU 2014-09’s

broad definition of variable consideration will require the Company to

estimate and record certain variable payments resulting from collaborative

COMPARATIVE ANALYSIS CASE (Continued)

and is expected to decrease the opening balance of retained earnings by

less than $350 million, net of tax.

Additionally, the provisions of the new guidance provided clarification

relating to the classification of certain costs incurred relating to revenue

arrangements with customers. As a result, we will be classifying certain

amounts in cost of goods sold or selling, general and administrative

expenses that were previously classified as reductions in net operating

revenues. The Company also evaluated the principal versus agent

considerations as it relates to certain of its arrangements with third-party

manufacturers and co-packers. We concluded that certain costs from these

arrangements will be reflected in net operating revenues rather than in cost

of goods sold. These changes will have no impact on the Company’s

consolidated operating income.

In November 2015, the FASB issued ASU 2015-17, Balance Sheet

Classification of Deferred Taxes. The amendments in this update are

intended to simplify the presentation of deferred income taxes and require

that deferred tax liabilities and assets be classified as noncurrent in a

COMPARATIVE ANALYSIS CASE (Continued)

impact for the reclassifications as of December 31, 2016 would have

increased the noncurrent line items other assets and deferred income

taxes in our consolidated balance sheet by $54 million and $666 million,

respectively.

In February 2016, the FASB issued ASU 2016-02, Leases, which requires

lessees to recognize right-of-use assets, representing their right to use the

underlying asset for the lease term, and lease liabilities on the balance

sheet for all leases with terms greater than 12 months. The guidance also

requires qualitative and quantitative disclosures designed to assess the

amount, timing and uncertainty of cash flows arising from leases. The

Company has initiated its plan for the adoption and implementation of this

COMPARATIVE ANALYSIS CASE (Continued)

In March 2016, the FASB issued ASU 2016-09, Compensation — Stock

Compensation: Improvements to Employee Share-Based Payment

Accounting. The standard is intended to simplify several areas of

accounting for share-based compensation arrangements, including the

income tax impact, classification on the statement of cash flows and

forfeitures. The Company adopted ASU 2016-09 on January 1, 2017 by

prospectively recognizing excess tax benefits and tax deficiencies in our

consolidated statement of income as the awards vested or were settled.

Effective January 1, 2017, the Company also prospectively presented

In June 2016, the FASB issued ASU 2016-13, Financial Instruments —

Measurement of Credit Losses on Financial Instruments, which requires

measurement and recognition of expected credit losses for financial assets

held. ASU 2016-13 is effective for the Company beginning January 1, 2020

and we are currently evaluating the impact that it will have on our

consolidated financial statements.

COMPARATIVE ANALYSIS CASE (Continued)

operating activities, however upon adoption of the new standard, we will

reflect these proceeds in investing activities.

In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of

Assets Other Than Inventory, which requires the Company to recognize the

income tax consequences of an intra-entity transfer of an asset other than

other assets in our consolidated balance sheet.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash. The

amendments in this update address diversity in practice that exists in the

classification and presentation of changes in restricted cash and require

that a statement of cash flows explain the change during the period in the

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of

a Business, which clarifies the definition of a business with the objective of

COMPARATIVE ANALYSIS CASE (Continued)

In March 2017, the FASB issued ASU 2017-07, Improving the Presentation

of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,

which requires that the service cost component of the Company’s net

periodic pension cost and net periodic postretirement benefit cost be

included in the same line item as other compensation costs arising from

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to

Accounting for Hedging Activities, which eliminates the requirement to

separately measure and report hedge ineffectiveness and requires

companies to recognize all elements of hedge accounting that impact

earnings in the same income statement line item where the hedged item

resides. The amendments include new alternatives for measuring the

COMPARATIVE ANALYSIS CASE (Continued)

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with

accounting principles generally accepted in the United States (“U.S.

GAAP”), which require management to make estimates, judgments and

assumptions that affect the amounts reported in our consolidated financial

statements and accompanying notes. We believe our most critical

accounting policies and estimates relate to the following:

• Principles of Consolidation

• Recoverability of Current and Noncurrent Assets

(b) and (c) for Pepsi:

Recently Issued Accounting Pronouncements – Adopted

In 2017, the SEC issued guidance related to the TCJ Act which allows

recording of provisional tax expense using a measurement period, not to

exceed one year, when information necessary to complete the accounting

for the effects of the TCJ Act is not available. We elected to apply the

COMPARATIVE ANALYSIS CASE (Continued)

In 2016, the Financial Accounting Standards Board (FASB) issued

guidance that changes the accounting for certain aspects of share-based

payments to employees. We adopted the provisions of this guidance

during our first quarter of 2017, resulting in the following impacts to our

financial statements:

• Income tax effects of vested or settled awards were recognized in the

provision for income taxes on our income statement on a prospective

basis. Previously, these tax effects were recorded on our equity

statement in capital in excess of par value. For the year ended

• Excess tax benefits are retrospectively presented within operating

activities and withholding tax payments upon vesting of RSUs, PSUs

The guidance also allows for the employer to repurchase more of an

employee’s shares, up to the maximum statutory rate, for tax withholding

purposes and not classify the award as a liability that requires valuation on

a mark-to-market basis. Our accounting treatment for outstanding awards

COMPARATIVE ANALYSIS CASE (Continued)

In 2016, the FASB issued guidance that eliminates the requirement that an

investor retrospectively apply equity method accounting for an investment

originally accounted for by another method. The guidance requires that an

equity method investor add the cost of acquiring the additional interest in

the investee to the current basis of the investor’s previously held interest

Recently Issued Accounting Pronouncements – Not Yet Adopted

[In 2018, the FASB issued guidance related to the TCJ Act for the optional

reclassification of the residual tax effects, arising from the change in the

corporate tax rate, in accumulated other comprehensive loss to retained

COMPARATIVE ANALYSIS CASE (Continued)

In 2017, the FASB issued guidance to amend and simplify the application

of hedge accounting guidance to better portray the economic results of

risk management activities in the financial statements. The guidance

expands the ability to hedge nonfinancial and financial risk components,

In 2017, the FASB issued guidance that requires companies to

retrospectively present the service cost component of net periodic benefit

cost for pension and retiree medical plans along with other compensation

costs in operating profit and present the other components of net periodic

benefit cost below operating profit in the income statement. The guidance

also allows only the service cost component of net periodic benefit cost to

In 2016, the FASB issued guidance to clarify how restricted cash should be

presented in the cash flow statement. We will adopt the guidance when it

becomes effective in the first quarter of 2018. The guidance is not expected

to have a material impact on our financial statements.

In 2016, the FASB issued guidance that requires companies to account for

the income tax effects of intercompany transfers of assets, other than

COMPARATIVE ANALYSIS CASE (Continued)

first quarter of 2018. The guidance is not expected to have a material

impact on our financial statements.

In 2016, the FASB issued guidance that requires lessees to recognize most

leases on the balance sheet, but record expenses on the income statement

in a manner similar to current accounting. For lessors, the guidance

modifies the classification criteria and the accounting for sales-type and

direct financing leases. The guidance is effective beginning in 2019 with

In 2016, the FASB issued guidance that requires companies to measure

investments in certain equity securities at fair value and recognize any

changes in fair value in net income. We will adopt the guidance when it

becomes effective in the first quarter of 2018. The guidance is not expected

COMPARATIVE ANALYSIS CASE (Continued)

In 2014, the FASB issued guidance on revenue recognition, with final

amendments issued in 2016. The guidance provides for a five-step model

to determine the revenue recognized for the transfer of goods or services

to customers that reflects the expected entitled consideration in exchange

for those goods or services. It also provides clarification for principal

2018.

We are utilizing a comprehensive approach to assess the impact of the

guidance on our contract portfolio by reviewing our current accounting

policies and practices to identify potential differences that would result

from applying the new requirements to our revenue contracts, including

evaluation of our performance obligations, principal versus agent

considerations and variable consideration. We are substantially complete

COMPARATIVE ANALYSIS CASE (Continued)

Estimates

The preparation of our consolidated financial statements requires us to

make estimates and assumptions that affect reported amounts of assets,

liabilities, revenues, expenses and disclosure of contingent assets and

liabilities. Estimates are used in determining, among other items, sales

incentives accruals, tax reserves, share-based compensation, pension and

ACCOUNTING, ANALYSIS, AND PRINCIPLES

Accounting

ABC CO.

Balance Sheet

at December 31

2020 2019 2020 2019

Cash $ 548 $ 365 Common stock $ 500 $ 500

ABC CO.

Income Statement

for the Year Ended December 31,

2020 2019

Sales ……………………………………………………………………… $550 $500

Cost of goods sold …………………………………………………. 330 290

Depreciation expense …………………………………………….. 40 40