The 2006 Annual Report for Kelloggs is on the Vspace site, in the chapter 6 folder. Please open the Annual Report and access the financial statements (income statement, referred to in Kelloggs annual report as statement of earnings; the statement of shareholders equity; and the consolidated balance sheet. In this transaction analysis, record the transactions and adjustments described below directly into the financial statements. Start with the three financial statements (income statement, retained earnings portion of statement of stockholders' equity, balance sheet), entering the 2006 numbers for those financials. Then record the transactions and adjustments, using a column to record each, to the right of the 2006 numbers.
You need not prepare an accounting equation worksheet. As transactions are recorded, be sure the financial statements are updated accordingly; arriving at final balances after all transactions have been recorded. Please make one change to the balance sheet. The balance sheet shows-
1 Kellogg's borrowed $2,400 million, issuing long-term debt.
2 Inventories sold during the period, on account, terms 2/10, n/30, $480 million.
The cost of these inventories was $192 million.
3 Salaries paid, $432.2 million.
4 Received payment from $500 million of accounts receivables. Terms for these receivables were 2/10, n/30, and they were paid within the 10-day discount period.
5 Defective inventories were returned to Kellogg. Their sales price was $38 million and their cost was $14.3 million. Accounts receivable was credited for these customers. Because these inventories were defective (milk was mistakenly added to each box of cereal), they were not returned to inventory.
6 Cash receipts from customer accounts receivables, not within the 10-day discount period totaled $11.8 million.
7 Declared and paid cash dividends of $403.9 million.
8 Payments on debt (current maturities), reduction in the principle amount of the debt totaled $204.4 million (reduction in debt), payment for interest $22 million (interest expense) total paid, $226.4 million.
9 Acquired additional inventories, on account, $528.9, terms 3/10, n/45.
10 Made cash payments of $400.0 on the inventories purchased in #9, within the discount period.
11 Paid the remainder owed from #9, not within the discount period.
12 Kellogg's purchases equipment and buildings, $34 million, financing with notes payable.
13 Year end depreciation on property, $112 million.
14 Poorly trained employees accidentally placed Cocoa Puffs in Eggos boxes, and vice versa. As a result, $111.3 of inventories had to be destroyed and written off.
15 Other current liabilities include unearned revenues of $458.0 resulting from gift certificates purchased by customers, not yet redeemed. $215 are redeemed in this transaction (cost of the inventories sold was $110.
16 Cash sales of inventories $816 million, cost of sales $612 million.
17 Kellogg uses FIFO in costing and counting raw materials inventories. An examination of purchase invoices shows raw materials purchases during the year as follows: December 17, 72 million pounds @ $.50 per pound; Nov. 22, 120 million pounds @ $.46 per pound; Oct. 29, 270 million pounds @ $.44 per pound; Oct. 1, 1,809 million pounds @ $.20 per pound, Aug. 8, 642 million pounds @ $.18 per pound, June 2, 180 million pounds @ $.17 per pound. A physical count of raw materials shows 665 million pounds were in warehouses at December 31. Adjust cost of goods sold for the correction to inventories.
18 A lower of cost or market comparison is then made, and it is determined that some of the inventories need to be written down further, to market, the write-down totals $43 million.
19 Year end estimate of bad debts, based on an analysis of accounts receivable, is $79 million.