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The interest formula shows how interest, rate, and time are related. It gives you a way of finding one of these values if the other three values are known. Even though you try to be careful in your calculations, there will always be that occasion when you make an error and end up with an incorrect answer. You can avoid such errors by first predicting what a reasonable answer might be by estimating. As an example, if you have an 11.2% interest, you could use 11% to estimate what the correct result would be.
Search the internet to find an application of simple interest that you find interesting, that you encounter on a daily basis or that you find in your profession.
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How could you avoid an error by using a pre-estimation? Present this application to the class and explain why you choose the example.
In what ways do you use estimating in your everyday life?
Include the URL for the site you used. Do not copy the text in the site verbatim. You should summarize your findings.
This week’s Discussion topic comes from BYP11-2 page 547 of your textbook. PepsiCo, Inc. and Coca-Cola Co. Inc. financial statements are in Appendix A and B of your textbook. Use the financials to answer the following questions.
(a) At December 26, 2009, what was PepsiCo’s largest current liability account? What were its total current liabilities? At December 31, 2009, what was Coca-Cola’s largest current liability account? What were its total current liabilities?
(b) Based on information contained in those financial statements, compute the following 2009 values for each company.
(1) Working capital.
(2) Current ratio.
(c) What conclusions concerning the relative liquidity of these companies can be drawn from these data?
BYP11-2 page 547
Go to the book’s companion website, www.wiley.com/college/weygandt, to see the completion of this problem.
BROADENING YOUR PERSPECTIVE
Financial Reporting and Analysis
Financial Reporting Problem: PepsiCo, Inc.
The financial statements of PepsiCo, Inc. and the notes to consolidated financial statements appear inAppendix A.
HERE ARE THE FINANCIAL STATEMENTS
APPENDIX A: Specimen Financial Statements: PepsiCo, Inc.
The Annual Report
Once each year a corporation communicates to its stockholders and other interested parties by issuing a complete set of audited financial statements. The annual report, as this communication is called, summarizes the financial results of the company’s operations for the year and its plans for the future. Many annual reports are attractive, multicolored, glossy public relations pieces, containing pictures of corporate officers and directors as well as photos and descriptions of new products and new buildings. Yet the basic function of every annual report is to report financial information, almost all of which is a product of the corporation’s accounting system.
The content and organization of corporate annual reports have become fairly standardized. Excluding the public relations part of the report (pictures, products, etc.), the following are the traditional financial portions of the annual report:
- • Financial Highlights
- • Letter to the Stockholders
- • Management’s Discussion and Analysis
- • Financial Statements
- • Notes to the Financial Statements
- • Management’s Responsibility for Financial Reporting
- • Management’s Report on Internal Control over Financial Reporting
- • Report of Independent Registered Public Accounting Firm
- • Selected Financial Data
In this appendix we illustrate current financial reporting with a comprehensive set of corporate financial statements that are prepared in accordance with generally accepted accounting principles and audited by an international independent certified public accounting firm. We are grateful for permission to use the actual financial statements and other accompanying financial information from the annual report of a large, publicly held company, PepsiCo, Inc.
Companies usually present the financial highlights section inside the front cover of the annual report or on its first two pages. This section generally reports the total or per share amounts for five to fifteen financial items for the current year and one or more previous years. Financial items from the income statement and the balance sheet that typically are presented are sales, income from continuing operations, net income, net income per share, net cash provided by operating activities, dividends per common share, and the amount of capital expenditures. The financial highlights section from PepsiCo’s Annual Report is shown on page A2.
The financial information herein is reprinted with permission from the PepsiCo, Inc. 2009 Annual Report.
PepsiCo, Inc. and subsidiaries
(in millions except per share data; all per share amounts assume dilution)
Chg Constant Currency(a)(e)
Summary of Operations
Total net revenue
Core division operating profit (b)
Core total operating profit (c)
Core net income attributable to PepsiCo (c)
Core earnings per share (c)
Management operating cash flow, excluding certain items (d)
Net cash provided by operating activities
Common share repurchases
Percentage changes are based on unrounded amounts.
Excludes corporate unallocated expenses, restructuring and impairment charges and PBG and PAS merger costs. See page 91 for a reconciliation to the most directly comparable financial measure in accordance with GAAP.
Excludes restructuring and impairment charges, PBG and PAS merger costs and the net mark-to-market impact of our commodity hedges. See pages 91 and 92 for a reconciliation to the most directly comparable financial measure in accordance with GAAP.
Includes the impact of net capital spending, and excludes the impact of a discretionary pension contribution, cash payments for PBG and PAS merger costs and restructuring-related cash payments. See also “Our Liquidity and Capital Resources” in Management’s Discussion and Analysis. See page 92 for a reconciliation to the most directly comparable financial measure in accordance with GAAP.
Assumes constant currency exchange rates used for translation based on the rates in effect in 2008. See pages 91 and 92 for a reconciliation to the most directly comparable financial measure in accordance with GAAP.
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Print Activate the
APPENDIX B: Specimen Financial Statements: The Coca-Cola Company
THE COCA-COLA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
(In millions except per share data)
NET OPERATING REVENUES
Cost of goods sold
Selling, general and administrative expenses
Other operating charges
Equity income (loss) — net
Other income (loss) — net
INCOME BEFORE INCOME TAXES
CONSOLIDATED NET INCOME
Less: Net income attributable to noncontrolling interests
NET INCOME ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY
BASIC NET INCOME PER SHARE1
DILUTED NET INCOME PER SHARE1
AVERAGE SHARES OUTSTANDING
Effect of dilutive securities
AVERAGE SHARES OUTSTANDING ASSUMING DILUTION
Basic net income per share and diluted net income per share are calculated based on net income attributable to shareowners of The Coca-Cola Company.
Refer to Notes to Consolidated Financial Statements.
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Refer to PepsiCo’s financial statements and answer the following questions about current and contingent liabilities and payroll costs.
- (a) What were PepsiCo’s total current liabilities at December 26, 2009? What was the increase/decrease in PepsiCo’s total current liabilities from the prior year?
- (b) In PepsiCo’s Note 2 (“Our Significant Accounting Policies”), the company explains the nature of its contingencies. Under what conditions does PepsiCo recognize (record and report) liabilities for contingencies?
- (c) What were the components of total current liabilities on December 26, 2009?
Comparative Analysis Problem: PepsiCo, Inc. vs. The Coca-Cola Company
PepsiCo, Inc.’s financial statements are presented in Appendix A. Financial statements of TheCoca-Cola Company are presented in Appendix B.
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