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P 1394 (1-6)
The financial statements of Coca-Cola and PepsiCo are presented in Appendices C and D,
respectively. The companies' complete annual reports, including the notes to the financial
statements, are available online. Instructions Use the companies' financial information to answer
the following questions.
1. What method of computing net cash provided by operating activities does Coca-Cola
use? What method does PepsiCo use? What were the amounts of cash provided by
operating activities reported by Coca-Cola and PepsiCo in 2014?
2. What was the most significant item reported by Coca-Cola and PepsiCo in 2014 in their
investing activities sections? What is the most significant item reported by Coca-Cola and
PepsiCo in 2014 in their financing activities sections?
3. What were these two companies' trends in net cash provided by operating activities over
the period 2012 to 2014?
4. Where is “depreciation and amortization” reported by Coca-Cola and PepsiCo in their
statements of cash flows? What is the amount and why does it appear in that section of
the statement of cash flows? 5. Based on the information contained in Coca-Cola's and
PepsiCo's financial statements, compute the following 2014 ratios for each company.
These ratios require the use of statement of cash flows data. (These ratios were covered in
Chapter $56000000
5. (1) Current cash debt coverage. (2) Cash debt coverage.
89000000
6. What conclusions concerning the management of cash can be drawn from the ratios
computed in (e)?
254,
Cash Flow Analysis) The partner in charge of the Kappeler Corporation audit comes by your
desk and leaves a letter he has started to the CEO and a copy of the cash flow statement for the
year ended December 31, 2017. Because he must leave on an emergency, he asks you to finish
the letter by explaining:
(1) the disparity between net income and cash flow, The answer is net income is defined as the as
line item in operating activities of cash flow while cash flow is a calculation of subtracting cost
of sale
(2) the importance of operating cash flow, it enable the company to grow vigorously
(3) the renewable source(s) of cash flow, and
this is the cash flow generated by activities
(4) possible suggestions to improve the cash position. The first thing one can do is to lease not and not buying, and offering credit on loans lastly
conducting credit check on customers.
KAPPELER CORPORATION
Statement of Cash FlowsFor the Year Ended December 31, 2017
Cash flows from operating activities
Net income
$ 100,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense
Amortization expense
Loss on sale of fixed assets
Increase in accounts receivable (net)
Increase in inventory
Decrease in accounts payable $ 10,000
1,000
5,000
(40,000)
(35,000)
(41,000)
(100,000) Net cash provided by operating activities
Cash flows from investing activities
Sale of plant assets
Purchase of equipment
Purchase of land
Net cash used by investing activities
Cash flows from financing activities
Payment of dividends
Redemption of bonds
Net cash used by financing activities
Net decrease in cash
Cash balance, January 1, 2017
Cash balance, December 31, 2017 –0–
25,000
(100,000)
(200,000)
(275,000)
(10,000)
(100,000)
(110,000)
(385,000)
400,000
$15,000 Date
President Kappeler, CEO
Kappeler Corporation
125 Wall Street
Middleton, Kansas 67458
Dear Mr. Kappeler:
I have good news and bad news about the financial statements for the year ended December 31,
2017. The good news is that net income of $100,000 is close to what we predicted in the strategic
plan last year, indicating strong performance this year. The bad news is that the cash balance is
seriously low. Enclosed is the Statement of Cash Flows, which best illustrates how both of these
situations occurred simultaneously …
Instructions complete the letter to the CEO, including the four components requested by your
boss. Page 309 6-12
ETHICS (Pension Funding) Craig Brokaw, newly appointed controller of STL, is considering
ways to reduce his company's expenditures on annual pension costs. One way to do this is to
switch STL's pension fund assets from First Security to NET Life. STL is a very well-respected
computer manufacturer that recently has experienced a sharp decline in its financial performance
for the first time in its 25-year history. Despite financial problems, STL still is committed to
providing its employees with good pension and postretirement health benefits. Under its present
plan with First Security, STL is obligated to pay $43 million to meet the expected value of future
pension benefits that are payable to employees as an annuity upon their retirement from the
company. On the other hand, NET Life requires STL to pay only $35 million for identical future
pension benefits. First Security is one of the oldest and most reputable insurance companies in
North America. NET Life has a much weaker reputation in the insurance industry. In pondering
the significant difference in annual pension costs, Brokaw asks himself, “Is this too good to be
true?”
Instructions answer the following questions.
(a) Why might NET Life's pension cost requirement be $8 million less than First Security's
requirement for the same future value? This I due to the poor situation of the company at
the moment
(b) What ethical issues should Craig Brokaw consider before switching STL's pension fund
assets? He must consider the availability of work force, enhanced productivity and
customer protection from the pension fund assets
(c) Who are the stakeholders that could be affected by Brokaw's decision? Insurance companies
will influence his decision on quality, the need of making a lot of money hence provide low
quality