Accounting Project Michael Lawson & Yanqui Luo ACCT 615‐ Fall 2009
Part 1: Ledger Accounts (as of 11/31)
Michael Lawson (51) & Yanqiu Luo (29)‐ ACCT615_001 Assets
Nov‐31
Cash 140,000
Nov‐31
140,000
PPE Nov‐31 1,040,000 Nov‐31 480,000 Nov‐31 800,000
Nov‐31
Office Supplies 15,000
Nov‐31
15,000
Nov‐31 2,320,000
Nov‐31 Nov‐31
Accounts Recievable 165,000
Accumulated Depreciation Nov‐31 360,000 Nov‐31 180,000
165,000
Stock Investments (Long‐term) Nov‐31 230,000 Nov‐31
Nov‐31 Allowance for Doubtful Accounts Nov‐31 5,000 Nov‐31
5,000
230,000
540,000
Nov‐31
Goodwill 480,000
Nov‐31
Merchandise Inventory 180,000
Nov‐31
480,000
Nov‐31
180,000
Liablilties Bonds Payable Nov‐31 1,000,000
Accounts Payable Nov‐31
150,000
Nov‐31 1,000,000
Nov‐31
150,000
Stockholders' Equity Common Stock Nov‐31
200,000
Nov‐31
213,000
Nov‐31
Treasury Stock 100,000
Nov‐31
200,000
Nov‐31
213,000
Nov‐31
100,000
Retained Earnings Jan‐01
213,000
Investment Revenue Nov‐31
19,000
Sales Revenue Jan‐09 1,100,000
Jan‐01
213,000
Nov‐31
19,000
Nov‐31 1,100,000
Common Stock, Paid‐in Capital in excess of Par
Nov‐31
Cost of Goods Sold 650,000
Nov‐31
Nov‐31
650,000
Nov‐31
Nov‐31
Utilities Expense 22,000
Nov‐31
Nov‐31
22,000
Nov‐31
Advertising Expense 11,000 11,000 Insurance Expense 10,000 10,000
Nov‐31
Salaries Expense 480,000
Nov‐31
480,000
Part 2: General Journal
Michael Lawson (51) & Yanqiu Luo (29)‐ ACCT615_001
General Journal Date 2009 3‐Dec
Account Title & Explanation
Dr. Merchandise Inventory (Asset ↑) Cr. Accounts Payable‐ Ann Co. (Liab ↑)
Ref
Debit
Credit
20,500 20,500
(1) 6‐Dec
Dr. Bad‐Debt Expense (Liab ↓) Cr. Accounts Recievable‐ Sheri Co. (Liab ↑)
4,000 4,000
(2) 8‐Dec
Dr. Cost of Goods Sold (Asset ↑) Cr. Inventory (Liab ↑) Dr. Accounts Recievable‐ Gamma Inc. (Asset ↑) Cr. Sales Revenue (Liab ↑)
24,000 24,000 50,000 50,000
(3) 10‐Dec
Dr. Cash (Asset ↑) Cr. Common Stock (Liab ↑) Cr. Common Stock, Paid in excess of Par (Liab ↑)
110,000 20,000 90,000
(4) 12‐Dec
Dr. Cash (Liab ↓) Cr. Accounts Recievable‐ Fried Co. (Equity ↑)
45,000 45,000
(5) 15‐Dec
Dr. Advertising Expense‐ The Investors (Liab ↓) Cr. Cash (Asset ↓)
600 600
(6) 19‐Dec
Dr. Accounts Payable‐ Hwang Co. (Liab ↓) Cr. Cash (Equity ↑)
40,000 40,000
(7) 24‐Dec
Dr. Prepaid Insurance (Liab ↓) Cr. Cash (Asset ↓)
9,000 9,000
(8) 27‐Dec
Dr. Cash (Asset ↑) Cr. Unearned Revenue (Liab ↑)
30,000
Dr. Retained Earnings (Equity ↓) Cr. Dividends Payable (Liab ↑)
20,000
30,000
(9) 28‐Dec
20,000
(10) 30‐Dec
Dr. Utilities Expense (Equity ↓) Cr. Cash (Asset ↓)
2,000
Dr. Salaries Expense (Equity ↓) Cr. Cash (Asset ↓)
22,500
2,000
(11) 31‐Dec (12)
22,500
Part 3: General Journal (Adjustments)
Michael Lawson (51) & Yanqiu Luo (29)‐ ACCT615_001
General Journal (Adjustments) Account Title & Explanation
Date 2009 31‐Dec
Ref
Debit
Dr. Depreciation Expense (Buildings) Cr. Accumulated Depreciation
24,000
Dr. Depreciation Expense (Equipment) Cr. Accumulated Depreciation
21,000
Dr. Interest Expense Cr. Interest Payable
50,000
Dr. Supplies Expense Cr. Office Supplies
12,000
Dr. Bad‐Debt Expense Cr. Allowance for Doubtful Accounts
10,000
Credit
24,000
(a) 31‐Dec
21,000
(b) 31‐Dec
50,000
(c) 31‐Dec
12,000
(d) 31‐Dec
10,000
(e)
Income = Revenue-Expense = (Investment Revenue+ Sales Revenue)-(Advertising Expense+ COGS+ Insurance Expense+ Salaries Expense+ Utilities Expense+ Depreciation Expense+ Interest Expense+ Supplies Expense+ Tax Expense+ Bad-debt Expense) = 1,169,000 - 1,107,100 = $619,000 Tax=30%*619,000=$18,570 Net Income= 619,000-18,570=$43,330 Date 2009 31‐Dec (f)
Account Title & Explanation
Dr. Income Tax Cr. Tax Payable
Ref
Debit
Credit
18,570 18,570
Michael Lawson (51) & Yanqiu Luo (29)‐ ACCT615_001
Part 3: Ledger Accounts (Adjustments) Assets
30‐Nov 10‐Dec 12‐Dec 27‐Dec
31‐Dec
30‐Nov 8‐Dec 31‐Dec
Cash 140,000 110,000 45,000 30,000
15‐Dec 19‐Dec 24‐Dec 30‐Dec 31‐Dec
600 40000 9,000 2,000 22,500
Accounts Recievable 165,000 6‐Dec 50,000 12‐Dec
4,000 45,000
PPE 30‐Nov 1,040,000 30‐Nov 480,000 30‐Nov 800,000
30‐Nov 31‐Dec
3,000
250,900
166,000
Allowance for Doubtful Accounts 30‐Nov 5,000 adj‐e 10,000 31‐Dec
31‐Dec
12,000
31‐Dec 2,320,000
Accumulated Depreciation 30‐Nov 360,000 30‐Nov 180,000 adj‐a 24,000 adj‐b 21,000 31‐Dec
24‐Dec
Office Supplies 15,000 adj‐d
30‐Nov
Goodwill 250,000
31‐Dec
250,000
Stock Investments (Long‐term) 30‐Nov 230,000 31‐Dec
230,000
585,000
30‐Nov 3‐Dec
15,000
31‐Dec
Merchandise Inventory 180,000 adj‐a 20,500
24,000
176,500
Prepaid Insurance 9,000 9,000 Liablilties Bonds Payable 30‐Nov 1,000,000
19‐Dec
Accounts Payable 40,000 30‐Nov 3‐Dec
150,000 20,500
31‐Dec
130,500
Dividends Payable 28‐Dec
20,000
31‐Dec
20,000
31‐Dec 1,000,000
Interest Payable 8‐Dec
50,000
Tax Payable adj‐f
18,750
Unearned Revenue 27‐Dec
30,000
31‐Dec
50,000
31‐Dec
18,750
31‐Dec
30,000
Stockholders' Equity
28‐Dec
Common Stock 30‐Nov 28‐Dec
200,000 20,000
30‐Nov 1,110,000 10‐Dec 90,000
30‐Nov
220,000
31‐Dec 1,200,000
Retained Earnings 20,000 1‐Jan (NI)
213,000 43,330
1‐Jan
236,330
Cost of Goods Sold 650,000 24,000
30‐Nov 15‐Dec
31‐Dec
674,000
31‐Dec
Utilities Expense 22,000 2,000
31‐Dec
24,000
30‐Nov 31‐Dec
adj‐d 31‐Dec
Supplies Expense 12,000
adj‐a adj‐b
31‐Dec
Investment Revenue 30‐Nov
19,000
31‐Dec
19,000
Advertising Expense 11,000 600 11,600 Insurance Expense 10,000 10,000
Depreciation Expense 24,000 21,000
12,000
Bad‐Debt Expense 4,000 10,000 14,000
31‐Dec
100,000
Sales Revenue 30‐Nov 1,100,000 8‐Dec 50,000
30‐Nov 31‐Dec
Salaries Expense 244,000 22,500
31‐Dec
266,500
adj‐c 31‐Dec
adj‐f 31‐Dec
31‐Dec
6‐Dec adj‐e
Treasury Stock 100,000
31‐Dec 1,150,000
30‐Nov adj‐a
30‐Nov 30‐Dec
30‐Nov
Common Stock, Paid‐in Capital in excess of Par
45,000
Interest Expense 50,000 50,000
Tax Expense 18,750 18,750
Part 4: Income Statement
Michael Lawson (51) & Yanqiu Luo (29)‐ ACCT615_001 WONDER COMPANY Income Statement For the Year Ended 12/31/2009
Net Sales Cost of Goods Sold Gross Profit Operating Expenses Advertising Expense Utilities Expense Supplies Expense Insurance Expense Depreciation Expense Bad‐Debt Expense Salaries Expense Total Expenses Income from Operations Other Revenues & Gains: Investment Revenue Other Expenses & Losses: Investment Revenue Income from Continuing Operations Before Taxes Income Tax Net Income
$ 1,150,000 674,000 476,000 $ 11,600 24,000 12,000 10,000 45,000 14,000 266,500 383,100 92,900 $ 19,000 $ 50,000 61,900 18,570 $ 43,330
Part 4: Retained Earnings Statement
Michael Lawson (51) & Yanqiu Luo (29)‐ ACCT615_001 WONDER COMPANY Retained Earnings Statement For the Year Ended 12/31/2009
Balance, January 1, as reportec Add: Net Income Less: Cash Dividends Balance, December 31
$ 213,000 43,330 256,330 $ 20,000 $ 236,330
Part 1: Balance Sheet
Michael Lawson (51) & Yanqiu Luo (29)‐ ACCT615_001 WONDER COMPANY Balance Sheet For the Year Ended 12/31/2009 Assets
Current Assets Cash Recievables (net) Supplies Inventory Prepaid Insurance Total Current Assets Long‐Term Investments Stock Investment PPE (net of Accumulated Depreciation) Other Long‐Term Assets Goodwill Total Assets
$ 250,900 151,000 3,000 176,500 9,000 590,400 230,000 1,735,000 250,000 $ 2,805,400 Liabilities & Stockholders' Equity
Liabilities Current Liabilities Accounts Payable Unearned Revenue Dividends Payable Interest Payable Tax Payable Total Current Liabilities Long‐Time Liabilities Bonds Payable Total Liabilities Shareholders' Equity Common Stock Common Stock Common Stock Common Stock Total Shareholder's Equity
$ 130,500 30,000 20,000 50,000 18,570 $ 249,070 1,000,000 $ 1,249,070 220,000 1,200,000 236,330 (100,000) $ 1,556,330
Part 5: General Journal (Closing)
Michael Lawson (51) & Yanqiu Luo (29)‐ ACCT615_001
General Journal (Closing) Date 2009 31‐Dec
Account Title & Explanation
1,150,000 19,000 1,169,000
1,125,670 11,600 24,000 12,000 10,000 266,500 50,000 45,000 14,000 674,000 18,570
Close Income Summary Accounts
Income Summary Retained Earnings (c)
Credit
Close Expense Accounts
Income Summary Advertising Expense Utilities Expense Supplies Expense Insurance Expense Salaries Expense Interest Expense Depreciation Expense Bad‐Debt Expense Cost of Goods Sold Tax Expense (b) 31‐Dec
Debit
Close Revenue Accounts
Sales Revenue Investment Revenue Income Summary (a) 31‐Dec
Ref
43,330 43,330
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 CocaCola 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 31,944 m b) The PepsiCo, Inc (2008)
= 18.2%
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) = 14.6% ROA = 5,142 m (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 a) The Coca-Cola Company (2008) 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 shortterm debt-paying. B. Inventory Turnover Ratio = Cost of Goods Sold Average Inventory a) The Coca-Cola Company (2008) Inventory Turnover Ratio = 11,347 m = 5.2 times (2,187 m+2,220 m)/2 b) The PepsiCo, Inc (2008) = 8.5 times Inventory Turnover Ratio = 20,351 m (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 a) The Coca-Cola Company (2008) 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 a)
Total Assets 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.