Management: Accounting Project

Accounting Project Michael Lawson & Yanqui Luo

ACCT 615‐ Fall 2009

Nov‐31 140,000 Nov‐31 1,040,000 Nov‐31 15,000Nov‐31 480,000

Nov‐31 140,000 Nov‐31 800,000 Nov‐31 15,000

Nov‐31 2,320,000

Nov‐31 165,000 Nov‐31 360,000 Nov‐31 230,000Nov‐31 180,000

Nov‐31 165,000 Nov‐31 230,000Nov‐31 540,000

Nov‐31 5,000 Nov‐31 480,000 Nov‐31 180,000

Nov‐31 5,000 Nov‐31 480,000 Nov‐31 180,000

Nov‐31 1,000,000 Nov‐31 150,000

Nov‐31 1,000,000 Nov‐31 150,000

Nov‐31 200,000 Nov‐31 213,000 Nov‐31 100,000

Nov‐31 200,000 Nov‐31 213,000 Nov‐31 100,000

Jan‐01 213,000 Nov‐31 19,000 Jan‐09 1,100,000

Jan‐01 213,000 Nov‐31 19,000 Nov‐31 1,100,000

Nov‐31 650,000 Nov‐31 11,000 Nov‐31 480,000

Nov‐31 650,000 Nov‐31 11,000 Nov‐31 480,000

Nov‐31 22,000 Nov‐31 10,000

Nov‐31 22,000 Nov‐31 10,000

Part 1: Ledger Accounts (as of 11/31)Assets

Liablilties

Stockholders' Equity

Cash PPE Office Supplies

Accounts Recievable Accumulated Depreciation

Michael Lawson (51) & Yanqiu Luo (29)‐ ACCT615_001

Merchandise Inventory

Stock Investments (Long‐term)

Bonds Payable Accounts Payable

Allowance for Doubtful Accounts

Cost of Goods Sold Advertising Expense Salaries Expense

Utilities Expense

Goodwill

Insurance Expense

Retained Earnings Investment Revenue Sales Revenue

Common Stock Common Stock, Paid‐in Capital in excess of Par Treasury Stock

Date 2009 Ref Debit Credit

3‐Dec 20,500

20,500(1)

6‐Dec 4,000

4,000(2)

8‐Dec 24,000

24,000

50,000

50,000(3)

10‐Dec 110,000

20,000

90,000(4)

12‐Dec 45,000

45,000(5)

15‐Dec 600

600(6)

19‐Dec 40,000

40,000(7)

24‐Dec 9,000

9,000(8)

27‐Dec 30,000

30,000(9)

28‐Dec 20,000

20,000(10)

30‐Dec 2,000

2,000(11)

31‐Dec 22,500

22,500(12)

Part 2: General Journal

Account Title & Explanation

Dr. Merchandise Inventory (Asset ↑)


Cr. Cash (Asset ↓)

Cr. Common Stock (Liab ↑)

Cr. Accounts Payable‐ Ann Co. (Liab ↑)

General Journal

Dr. Bad‐Debt Expense (Liab ↓)

Cr. Accounts Recievable‐ Sheri Co. (Liab ↑)

Dr. Cost of Goods Sold (Asset ↑)

Cr. Inventory (Liab ↑)

Cr. Sales Revenue (Liab ↑)

Dr. Accounts Recievable‐ Gamma Inc. (Asset ↑)

Dr. Cash (Asset ↑)

Cr. Common Stock, Paid in excess of Par (Liab ↑)

Dr. Cash (Liab ↓)

Cr. Accounts Recievable‐ Fried Co. (Equity ↑)

Dr. Advertising Expense‐ The Investors (Liab ↓)


Dr. Accounts Payable‐ Hwang Co. (Liab ↓)

Cr. Cash (Equity ↑)

Dr. Prepaid Insurance (Liab ↓)


Dr. Cash (Asset ↑)

Cr. Unearned Revenue (Liab ↑)

Dr. Retained Earnings (Equity ↓)

Cr. Dividends Payable (Liab ↑)

Dr. Utilities Expense (Equity ↓)


Dr. Salaries Expense (Equity ↓)


31‐Dec 24,000

24,000(a)

31‐Dec 21,000

21,000(b)

31‐Dec 50,000

50,000(c)

31‐Dec 12,000

12,000(d)

31‐Dec 10,000

10,000(e)

Tax=30%*619,000=$18,570

Net Income= 619,000-18,570=$43,330


31‐Dec 18,570

18,570(f)

Part 3: General Journal (Adjustments)

General Journal (Adjustments)Account Title & Explanation

Dr. Depreciation Expense (Buildings)

Dr. Income TaxCr. Tax Payable


Income = Revenue-Expense = (Investment Revenue+ Sales Revenue)-(Advertising Expense+ COGS+ Insurance Expense+ SalariesExpense+ Utilities Expense+ Depreciation Expense+ Interest Expense+ Supplies Expense+ Tax Expense+ Bad-debt Expense) = 1,169,000 - 1,107,100 = $619,000

Account Title & Explanation

Dr. Supplies ExpenseCr. Office Supplies

Dr. Bad‐Debt ExpenseCr. Allowance for Doubtful Accounts

Cr. Accumulated Depreciation

Dr. Depreciation Expense (Equipment)Cr. Accumulated Depreciation

Dr. Interest ExpenseCr. Interest Payable

30‐Nov 140,000 15‐Dec 600 30‐Nov 1,040,000 30‐Nov 15,000 adj‐d 12,00010‐Dec 110,000 19‐Dec 40000 30‐Nov 480,00012‐Dec 45,000 24‐Dec 9,000 30‐Nov 800,000 31‐Dec 3,00027‐Dec 30,000 30‐Dec 2,000

31‐Dec 22,500 31‐Dec 2,320,000

31‐Dec 250,900

30‐Nov 165,000 6‐Dec 4,000 30‐Nov 360,000 30‐Nov 230,0008‐Dec 50,000 12‐Dec 45,000 30‐Nov 180,000

adj‐a 24,000 31‐Dec 230,00031‐Dec 166,000 adj‐b 21,000

31‐Dec 585,000

30‐Nov 5,000 30‐Nov 250,000 30‐Nov 180,000 adj‐a 24,000adj‐e 10,000 3‐Dec 20,500

31‐Dec 250,00031‐Dec 15,000 31‐Dec 176,500

24‐Dec 9,000

31‐Dec 9,000

30‐Nov 1,000,000 19‐Dec 40,000 30‐Nov 150,000 28‐Dec 20,0003‐Dec 20,500

31‐Dec 1,000,000 31‐Dec 20,00031‐Dec 130,500

8‐Dec 50,000 adj‐f 18,750 27‐Dec 30,000

31‐Dec 50,000 31‐Dec 18,750 31‐Dec 30,000

30‐Nov 200,000 30‐Nov 1,110,000 30‐Nov 100,00028‐Dec 20,000 10‐Dec 90,000

31‐Dec 100,00030‐Nov 220,000 31‐Dec 1,200,000

28‐Dec 20,000 1‐Jan 213,000 30‐Nov 19,000 30‐Nov 1,100,000(NI) 43,330 8‐Dec 50,000

31‐Dec 19,0001‐Jan 236,330 31‐Dec 1,150,000

30‐Nov 650,000 30‐Nov 11,000 30‐Nov 244,000adj‐a 24,000 15‐Dec 600 31‐Dec 22,500

31‐Dec 674,000 31‐Dec 11,600 31‐Dec 266,500

30‐Nov 22,000 30‐Nov 10,000 adj‐c 50,00030‐Dec 2,000

31‐Dec 10,000 31‐Dec 50,00031‐Dec 24,000

adj‐d 12,000 adj‐a 24,000 adj‐f 18,750adj‐b 21,000

31‐Dec 12,000 31‐Dec 18,75031‐Dec 45,000

6‐Dec 4,000adj‐e 10,000

31‐Dec 14,000

Supplies Expense Depreciation Expense Tax Expense

Bad‐Debt Expense


Prepaid Insurance

Dividends Payable

Interest Payable Tax Payable Unearned Revenue

Cost of Goods Sold Advertising Expense Salaries Expense

Utilities Expense Insurance Expense Interest Expense

Stockholders' Equity

Common Stock Common Stock, Paid‐in Capital in excess of Par Treasury Stock

Retained Earnings Investment Revenue Sales Revenue

Part 3: Ledger Accounts (Adjustments)Assets

Cash PPE Office Supplies

Liablilties

Bonds Payable Accounts Payable

Accounts Recievable Accumulated Depreciation Stock Investments (Long‐term)

Allowance for Doubtful Accounts Goodwill Merchandise Inventory

18,570Net Income 43,330$

61,900

Operating ExpensesAdvertising Expense

Income from Continuing Operations Before TaxesIncome Tax

Utilities ExpenseSupplies ExpenseInsurance ExpenseDepreciation ExpenseBad‐Debt ExpenseSalaries Expense

Total ExpensesIncome from Operations 92,900

50,000$ Other Expenses & Losses:

Investment Revenue

19,000$ Other Revenues & Gains:

Investment Revenue

14,000266,500

383,100

11,600$ 24,00012,00010,00045,000

1,150,000$ 674,000476,000

Part 4: Income Statement

WONDER COMPANYIncome Statement

For the Year Ended 12/31/2009


Net SalesCost of Goods SoldGross Profit

236,330$ Balance, December 31

256,330Less: Cash Dividends 20,000$

Balance, January 1, as reportec 213,000$ Add: Net Income 43,330

Part 4: Retained Earnings Statement

WONDER COMPANYRetained Earnings StatementFor the Year Ended 12/31/2009


Total Shareholder's Equity 1,556,330$

Common StockCommon Stock

236,330(100,000)

Common Stock 1,200,000

Liabilities & Stockholders' Equity

Total LiabilitiesShareholders' EquityCommon Stock 220,000

Bonds Payable 1,000,0001,249,070$

Total Current Liabilities 249,070$ Long‐Time Liabilities

Interest Payable 50,000Tax Payable 18,570

PPE (net of Accumulated Depreciation) 1,735,000

Liabilities

Total Assets 2,805,400$

Other Long‐Term Assets250,000Goodwill

30,00020,000

Unearned RevenueDividends Payable

130,500$ Current Liabilities

Accounts Payable

230,000Stock InvestmentLong‐Term Investments

Prepaid Insurance 9,000590,400Total Current Assets

Supplies 3,000Inventory 176,500

Cash 250,900$ Recievables (net) 151,000

AssetsCurrent Assets

Part 1: Balance Sheet

WONDER COMPANYBalance Sheet

For the Year Ended 12/31/2009



31‐Dec1,150,000

19,000

1,169,000(a)

31‐Dec1,125,670

11,600

24,000

12,000

10,000

266,500

50,000

45,000

14,000

674,000

18,570(b)

31‐Dec43,330

43,330(c)

Close Income Summary Accounts

Income SummaryRetained Earnings


Advertising Expense

Tax Expense

Utilities ExpenseSupplies Expense

Depreciation Expense

Insurance ExpenseSalaries ExpenseInterest Expense

Bad‐Debt ExpenseCost of Goods Sold

Income Summary

Close Revenue Accounts

Sales Revenue

Close Expense Accounts

Income Summary

Part 5: General Journal (Closing)

General Journal (Closing)Account Title & Explanation

Investment Revenue

Part 2- Company Analysis

Horizontal Analysis

Within the overall Horizontal Analysis of both Coca-Cola and PepsiCo it was

interesting to look at the overall affect the Recession has had on both companies.

From years 2007 to 2008 many of the numbers were in the negative showing losses in

equity, liabilities, and assets. Much of the losses for both companies came in the

investment category, long term and short term. For PepsiCo their short term

investments took the largest hit with a 86% decline from year to year. Coca-Cola had

the same result with their investments, seeing high losses from most of their

investment categories.

The income statement showed a lot of what is happening to the two companies.

Even though net revenue was up (Coca-Cola 11%, PepsiCo 10%) net income was

down (Coca-Cola -3%, PepsiCo -9%). For Coca-Cola its biggest loser came in equity

income as well as other incomes. Even though this was the case they still had a

positive operating income. PepsiCo however did not have a positive operating income

and had considerable loses in bottling equity income, 33%.

The biggest result of the financial crisis can be seen in the Shareholders Equity

report, where both companies showed considerable losses throughout the report.

Comprehensive Income for both companies was hit hard with triple digit losses.

Vertical Analysis

Within the Vertical Analysis of both companies it was easy to see the change

from year to year of distribution of equity and liabilities. For PepsiCo there was a

drastic difference between 2007 and 2008. Liabilities went from 50% to 66%, while

shareholder equity went from 50% to 34%. Coco-Cola seemed to be more sheltered

from this change with only a 1% increase in Liabilities.

When you look at the income statements PepsiCo is trending up in cost of

sales, 1% per year, while down in net income, 2% per year. Coca-Cola in 2007 and

2008 had increased their cost of goods sold however only in 2008 had their net

income declined by 3%. Gross profit for PepsiCo seems to be decreasing, while Coca-

Cola is within 1% change during all three years of data.

Ratio Analysis

I. Price-Earnings Ratios

A. Profit Margin Ratio = Net Income Net Sales

a) The Coca-Cola Company (2008)

Profit Margin Ratio = 5,807 m = 18.2% 31,944 m

b) The PepsiCo, Inc (2008)

Profit Margin Ratio = 5,142 m = 11.9% 43,251m The Coco-Cola has a higher profit margin ratio which suggests its favorable return on each dollar of sales. B. Asset Turnover Ratio = Net Sales .

Average Total Assets a) The Coca-Cola Company (2008)

Asset Turnover Ratio = 31,944 m = 0.76 times (40,519 m+43,269 m)/2

b) The PepsiCo, Inc (2008) Asset Turnover Ratio = 43,251 m = 1.22 times

(35,994 m+34,628 m)/2 The PepsiCo has a higher asset turnover ratio which suggests its efficient use of its assets to generate revenues. C. Return on Assets = Net Income .

Average Total Assets a) The Coca-Cola Company (2008)

ROA = 5,807 m = 13.9% (40,519 m+43,269 m)/2

b) The PepsiCo, Inc (2008) ROA = 5,142 m = 14.6%

(35,994 m+34,628 m)/2 The PepsiCo has a higher return on assets which suggests its favorable efficiency it uses the assets to generate profit. D. Payout Ratio = Cash Dividends Declared on Common Stock

Net Income a) The Coca-Cola Company (2008)

Payout Ratio = 3,521 m = 60.6% 5,807 m

b) The PepsiCo, Inc (2008) Payout Ratio = 2,589 m = 50.4%

5,142 m The PepsiCo has a higher payout ratio which suggests its higher percentage of earnings distributed in the form of cash dividends. II. Liquidity Ratios A. Current Ratio = Current Assets . Current Liabilities


Current Ratio = 12,176 m= 0.94:1 12,988 m

b) The PepsiCo, Inc (2008) Current Ratio = 10,806 m = 1.23:1

8,787 m The PepsiCo has a higher current ratio which suggests it has stronger ability in short-term debt-paying. B. Inventory Turnover Ratio = Cost of Goods Sold Average Inventory


Inventory Turnover Ratio = 11,347 m = 5.2 times (2,187 m+2,220 m)/2

b) The PepsiCo, Inc (2008) Inventory Turnover Ratio = 20,351 m = 8.5 times

(2,522 m+2,290 m)/2 The PepsiCo has a higher inventory turnover ratio which suggests its inventory is more liquid. C. Days in Inventory = 365 days . Inventory Turnover Ratio


Days in Inventory = 365 = 71 days 5.2

b) The PepsiCo, Inc (2008) Days in Inventory = 365 = 44 days

8.5 The PepsiCo has a lower value which suggests it needs less time to convert its

average level of inventory into cash. III. Solvency Ratios A. Debt to Total Assets Ratio= Total Liabilities Total Assets

a) The Coca-Cola Company (2008) Debt to Total Assets Ratio= 12,988 m+2,781 m+3,401 m = 47.3%

40,519 m b) The PepsiCo, Inc (2008)

Debt to Total Assets Ratio= 23,888 m = 66.4% 35,994 m

The PepsiCo has a higher debt to total assets ratio which suggests it has greater risk to repay debt. B. Times Interested Earned= NI before Interest Expense & Income Tax Interest Expense

a) The Coca-Cola Company (2008) Times Interested Earned= 7,439 m-438 m = 16 times

438 m b) The PepsiCo, Inc (2008)

Debt to Total Assets Ratio= 7,021 m-329 m = 20 times 329 m

The PepsiCo has higher times interested earned ratio which suggests it has greater ability to meet interest payments as they come due.

Management: Accounting Project

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