Adjusting Entries and Inventory Management in Financial
School
The Hong Kong University of Science and Technology**We aren't endorsed by this school
Course
FINA 1180
Subject
Accounting
Date
Dec 12, 2024
Pages
7
Uploaded by BarristerMetalAlligator44
Ⅰ.At the end of the fiscal year, the following adjusting entries were omitted:(a)No adjusting entry was made to transfer the $2,500 of prepaid insurance from the asset account to the expense account.(b)No adjusting entry was made to record accrued fees of $750 for services provided to customers.Assuming that financial statements are prepared before the errors are discovered, indicatethe effect of each error, considered individually, by inserting the dollar amount in the appropriate spaces. Insert "0" if the error does not affect the item.Error (a)Error (b)Over-Under-Over-Under-statedstatedstatedstated(1)Assets at December 31would be$ $ $ $(2)Liabilities at Dec. 31 would be$ $ $ $(3)Net income for the year would be$ $ $ $(4)Owner's equity at Dec.31 would be$ $ $ $Ⅱ.Merchandise with a list price of $3,800 and costing $2,000 is sold on account, subject tothe following terms: FOB destination, 2/10, n/30. The seller prepays the transportation costs of $50 (debit Transportation Out for the transportation costs). Prior to payment for the goods, the seller issues a credit memorandum for $800 to the customer for merchandise costing $500 that is returned. The correct amount is received within the discount period.Record the foregoing transactions of the seller in the sequence indicated below.(a)Sold the merchandise, recognizing the sale and cost of merchandise sold.(b)Paid the transportation charges.(c)Issued the credit memorandum.(d)Received payment from the customer.Ⅲ.Small Co. received a $10,000, 12%, 90-day note, dated October 1, from Wade Co. on account. On October 31, Ashley Co. discounted the note at the bank at 9%. Determine the items below and insert answers in the spaces provided.(360days for a year)(a)Due date of note_______________(b)Maturity value of note_______________(c)Discount period_______________ days(d)Discount amount_______________(e)Proceeds from discounting note_______________(f)Interest _______________________________________(insert Revenue or Expense)Ⅳ.Case: Coors Brewing CompanyCoors Brewing Company (CBC) produces, markets, and sells high-quality malt-based beverages. CBC concentrates on distinctive premium and above-premium brands that provide higher-than-average margins. Most of CBC's sales are in U.S. markets; however, the Company is committed to building profitable sales in international markets. Sales of malt beverages totaled 21.2 million barrels in 1998, 20.6 million barrels in 1997, and 20.0million barrels in 1996. 1
An income statement, balance sheet, statement of cash flows, and several notes appear at the end of this case.Required:1.Coors uses the LIFO flow assumption in its accounting for inventories. By how muchhigher or lower would Coors’ 1998 pretax income have been if it had used FIFO instead?2.How many times did Coors turn over its inventory in fiscal 1998? Be careful to explain why you used the numbers you used in the computation.3.During 1998 Coors discovered that $10,000 of packaging materials had become obsolete. Make the journal entry Coors would have made to recognize this.4.Make the journal entry Coors would have made on December 27, 1998, if it retired the Senior notes (see Debtfootnote) on that date. That is, suppose that Coors buys back the notes in the open market at their fair market value.5.Where is goodwill listed in the balance sheet? How much of it is there?6.Make the journal entry Coors would have made during fiscal 1998 to record any assetimpairments.7.Make the adjusting entry Coors made at the end of 1998 to bring the Marketable Securities (available-for-sale) to their current market value. Ignore taxes.8.What were expenditures on advertising during the 1998 fiscal year? (See the Advertising note.)9.Approximately what were Coors’ expenditures for total inventories during 1998?10.Make the journal entries to record Coors’ interest expense and capitalized interest during the 1998 fiscal year.ADOLPH COORS COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOMEFor the years ended December 27, December 28, December 29,1998 1997 1996 (In thousands, except per share data)Sales - domestic and international $2,291,322 $2,207,384 $2,121,146Less: beer excise taxes 391,789386,080379,311Net sales $1,899,533$1,821,304$1,741,835Costs and expenses:Cost of goods sold $1,158,887 $1,131,610 $1,131,470Marketing, general and administrative 617,432 573,818 523,250Special charges (credits) (Note 9) 19,395(31,517) 6,341 Total operating expenses $ 1,795,714$1,673,911$1,661,061Operating income $ 103,819$ 147,393$ 80,774Other income (expense):Interest income $ 12,136 $ 8,835 $ 2,924Interest expense (9,803) (13,277) (14,212)Miscellaneous - net 4,9483,9425,489Total $ 7,281$ (500)$ (5,799)Income before income taxes $ 111,100 $ 146,893 $ 74,975 2
Income tax expense (Note 5) 43,31664,63331,550Net income $ 67,784 $ 82,260 $ 43,425 Other comprehensive income (expense), net of tax:Foreign currency translation adjustments 1,430 (5,886) (1,670)Unrealized gain on available-for-sale securities 440-- -- Comprehensive income $ 69,654$ 76,374$ 41,755ADOLPH COORS COMPANY AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSDecember 27, December 28,1998 1997(In thousands)AssetsCurrent assets:Cash and cash equivalents $ 160,038 $ 168,875Short-term investments 96,190 42,163Accounts and notes receivable: Trade, less allowance for doubtful accountsof $299 in 1998 and $557 in 1997 106,962 89,731Affiliates 11,896 19,677Other, less allowance for certain claims of$584 in 1998 and $1,500 in 1997 7,751 15,077Inventories:Finished $ 38,520 $ 44,729In process 24,526 20,119Raw materials 34,016 35,654Packaging materials, less allowance forobsolete inventories of $1,018 in 1998and $1,049 in 1997 5,5985,977Total inventories $102,660 $106,479Other supplies, less allowance for obsoletesupplies of $3,968 in 1998 and $4,165 in 1997 27,729 32,362Prepaid expenses and other assets 12,848 18,224Deferred tax asset (Note 5) 22,91724,606Total current assets $548,991 $517,194Properties, at cost and net (Note 2) 714,441 733,117Excess of cost over net assets of businessesacquired, less accumulated amortizationof $6,727 in 1998 and $5,726 in 1997 23,114 22,8803
Long-term investments 31,444 47,100Other assets (Note 10) 142,60891,792Total assets $1,460,598$1,412,083December 27, December 28,1998 1997 (In thousands)Liabilities and Shareholders' EquityCurrent liabilities:Current portion of long-term debt (Note 4) $ 40,000 $ 27,500Accounts payable: Trade 132,193 113,864 Affiliates 11,706 18,072Accrued salaries and vacations 54,584 58,257Taxes, other than income taxes 48,332 52,805Federal and state income taxes (Note 5) 10,130 13,660Accrued expenses and other liabilities 86,96774,988Total current liabilities $ 383,912 $359,146Long-term debt (Note 4) 105,000 145,000Deferred tax liability (Note 5) 65,779 76,219Postretirement benefits (Note 8) 74,469 71,908Other long-term liabilities 56,64023,242Total liabilities $685,800 $675,515Shareholders' equity (Notes 6 and 11):Capital stock:Class A common stock, voting, $1par value, (authorized, issued and outstanding: 1,260,000 shares) $1,260 $1,260 Class B common stock, non-voting,no par value, $0.24 stated value (authorized: 100,000,000 shares; issued and outstanding: 35,395,306 in 1998 and 35,599,356 in 1997) 8,4288,476Total capital stock $9,688 $ 9,736Paid-in capital 10,505 --Retained earnings 756,531 730,628 Accumulated other comprehensive income (1,926)(3,796)Total shareholders' equity $ 774,798$ 736,568Total liabilities and shareholders' equity $1,460,598$1,412,0834
ADOLPH COORS COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended December 27, December 28, December 29,1998 1997 1996Cash flows from operating activities: (In thousands)Net income $ 67,784 $ 82,260 $ 43,425 Adjustments to reconcile net income to net cash provided by operating activities:Equity in net earnings of joint ventures (33,227) (15,893) (11,467)Reserve for severance 8,324 -- --Reserve for joint venture investment -- 21,978 --Depreciation, depletion and amortization 115,815 117,166 121,121Loss on sale or abandonment of properties and intangibles, net 7,687 5,594 12,535Impairment charge 2,219 10,595 --Deferred income taxes (8,751) (15,043) 17,696 Change in operating assets and liabilities: Accounts and notes receivable 2,140 (10,971) 2,232 Inventories 4,176 14,051 18,076 Other assets 8,977 3,742 (2,128)Accounts payable 9,899 9,599 (8,175)Accrued expenses and other liabilities (3,898)37,475(3,712)Net cash provided by operating activities $ 181,145$ 260,553$189,603Cash flows from investing activities:Purchases of investments $ (101,682) $(122,800) $ (5,958)Sales and maturities of investments 62,393 39,499 --Additions to properties and intangibleassets (104,505) (60,373) (65,112)Proceeds from sale of propertiesand intangibles 2,264 3,273 8,098Distributions from joint ventures 22,438 13,250 5,000Other (4,949)(775)6,569Net cash used in investing activities $ (124,041)$ (127,926) $(51,403)Cash flows from financing activities:Issuances of stock under stock plans $ 9,823 $ 24,588 $ 4,674Purchases of stock (27,599) (60,151) (6,975)Dividends paid (21,893) (20,523) (18,983)Payments of long-term debt (27,500) (20,500) (38,000)Other 1,1404,544 -- Net cash used in financing activities $ (66,029)$ (72,042)$(59,284)Cash and cash equivalents:Net (decrease) increase in cash and cash equivalents (8,925) 60,585 78,916 Effect of exchange rate changes oncash and cash equivalents 88 (2,615) (397)Balance at beginning of year 168,875 110,905 32,386Balance at end of year $ 160,038$ 168,875$ 110,9055
ADOLPH COORS COMPANY AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSSummary of Significant Accounting PoliciesExcess of cost over net assets of businesses acquired:The excess of cost over the net assets of businesses acquired in transactions accounted for as purchases is being amortized on a straight-line basis, generally over a 40-year period. During 1998, CBC recorded a $2.2-million impairment charge, which has been classified as a special charge in the accompanying statements of income, related to long-lived assets at one of its distributorships. The long-lived assets were considered impaired in light of both historical losses and expected future, undiscounted cash flows. The impairment charge represented a reduction of the carrying amounts of the impaired assets to their estimated fair market values, which were determined using a discounted cash flow model.Investments in marketable securities: ACC invests excess cash on hand in interest-bearing debtsecurities. At December 27, 1998, $96.2 million of these securities were classified as current assets and $31.4 million were classified as non-current assets, as their maturities exceeded one year. All of these securities were considered to be available-for-sale. At December 27, 1998, these securities have been recorded at fair value, based on quoted market prices, through other comprehensive income. Maturities on these investments range from 1999 through 2001.Inventories:Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for substantially all inventories.Current cost, as determined principally on the first-in, first-out method, exceeded LIFO cost by $41.4 million and $43.4 million at December 27, 1998, and December 28, 1997, respectively.Properties:Land, buildings and equipment are stated at cost. Depreciation is provided principally on the straight-line method over the following estimated useful lives: buildings and improvements, 10 to 45 years; and machinery and equipment, 3 to 20 years. Accelerated depreciation methods are generally used for income tax purposes. Expenditures for new facilities and improvements that substantially extend the capacity or useful life of an asset are capitalized. Start-up costs associated with manufacturing facilities, but not related to construction, are expensed as incurred. Ordinary repairs and maintenance are expensed as incurred.Impairment policy:The Company periodically evaluates its assets to assess their recoverability from future operations using undiscounted cash flows. Impairment would be recognized in operations if a permanent diminution in value is judged to have occurred.Advertising:Advertising costs, included in marketing, general and administrative, are expensed when the advertising first takes place. Advertising expense was $395.8 million, $360.0 million and $331.9 million for years 1998, 1997 and 1996, respectively. The Company had $7.0 million and $9.6 million of prepaid advertising production costs reported as assets at December 27, 1998, and December 28, 1997, respectively.Research and development:Research and project development costs, included in marketing, general and administrative, are expensed as incurred. These costs totaled $15.2 million, $14.6 million and $15.3 million in 1998, 1997 and 1996, respectively.PropertiesThe cost of properties and related accumulated depreciation, depletion and amortization consists of the following:6
As of December 27, December 28,1998 1997(In thousands)Land and improvements $ 94,561 $ 97,117Buildings 494,344 482,939Machinery and equipment 1,581,355 1,516,034Natural resource properties 8,623 8,906Construction in progress 50,84039,941$2,229,723 $2,144,937Less accumulated depreciation, depletion and amortization 1,515,2821,411,820Net properties $ 714,441$ 733,117Interest incurred, capitalized, expensed and paid were as follows:For the years ended December 27, December 28, December 29,1998 1997 1996(In thousands)Interest costs $12,532 $15,177 $17,362Interest capitalized (2,729) (1,900) (3,150) Interest expensed $ 9,803 $13,277 $14,212 Interest paid $12,808 $14,643 $17,711DebtLong-term debt consists of the following:As of December 27, 1998 December 28, 1997 Carrying Fair Carrying Fair value value value value(In thousands) Medium-term notes $ 40,000 $ 40,000 $ 67,500 $ 70,000Senior Notes 100,000 101,000 100,000 101,000Industrial development bonds 5,0005,0005,0005,000Total $145,000 $146,000 $172,500 $176,000Less current portion 40,00040,00027,50027,500$105,000$106,000$145,000$148,500Fair values were determined using discounted cash flows at current interest rates for similar borrowings.7