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wk4 #1 What is a current liability? From the perspective of auser of financial statements, why do you believe currentliabilities are separated from long-term liabilities? Based on yourcurrent experience as well as any additional research you may havedone, provide two examples of situations where businesses collectmonies from customers and employees and report these amounts as acurrent liability.

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Jean Keeling
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1 May 2019

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1. All of the following are characteristics of currentliabilities except:

a. they may involve estimated amounts. b. they are due withinone year or within the operating cycle, whichever is longer. c.they may be replaced with a new short-term liability rather thanbeing paid in cash. d. all three of the above are characteristic ofcurrent liabilities.

2. Which of the following is an example of a contingentliability?

a. A corporate long-term employment contract with the chiefexecutive officer. b. A lawsuit pending against a restaurant chainfor improper preparation of food. c. A liability for notes payablewith interest included in the face amount. d. The liability forfuture warranty repairs on computers sold during the currentperiod

. 3. A company will have to pay a $50,000 liability in 4 years.How much must be deposited now into a bank account earning 8%compounded semiannually to fully fund the future payment? HINT: PVof $1 The solution to this problem requires time value of moneycalculations. Reference to Tables 9-1 through 9-4 in the text isnecessary to complete the calculations.

a. $35,500 b. $36,535 c. $36,665 d. $34,000

4. On October 1, Lawrence Company borrowed $60,000 from FourthNational Bank on a 1-year, 7% note. If the company's fiscal yearends as of December 31, Lawrence should make an entry toincrease

a. interest payable, $1,050. b. prepaid interest, $3,150. c.notes payable, $1,050. d. interest expense, $4,200.

5. Warranty expenses are the result of the selling company’sestimate of the number of units sold during the current year thatmay become defective and need repair or replacement during thewarranty period.

a. True b. False

6. Estimated liability for product warranties to be paid in thefuture is a long term liability.

a. True b. False

7. The future value of equal semi-annual payments of $500 at 8%compounded semiannually for 4 years is HINT: FV of Annuity of $1The solution to this problem requires time value of moneycalculations. Reference to Tables 9-1 through 9-4 in the text isnecessary to complete the calculations.

a. $ 868 b. $9,320 c. $2,000 d. $4,607

8. What is the correct classification of the account: Discounton Notes Payable?

a. a revenue b. a contra liability c. an asset d. an expense

9. If the annual interest is 12%, but the compounding is donequarterly, then the interest rate is 3% per period.

a. True b. False

10. A convertible bond is one where a. the issuer can convertfrom

a fixed interest rate to a floating one. b. the issuer canconvert it from long-term to short-term. c. the issuer can retirethe bond before its specified due date. d. the holder can convertthe bond into common stock at a future time.

11. Which of the following statements regarding serial bonds istrue?

a.They are likely to be issued by food companies.

b. They have shorter lives than term bonds.

c.They are strongly backed by the issuer's collateral.

d. The bonds do not all mature on the same date.

12. Bonds are a popular source of financing because

a.bond interest expense is deductible for tax purposes, whiledividends paid on stock are not.

b. financial analysts tend to downgrade a company that hasraised large amounts of cash by frequent issues of stock.

c. a company having cash flow problems can postpone payment ofinterest to bondholders.

d. the bondholders can always convert their bonds into stock ifthey choose.

13. When determining the amount of interest to be paid on abond, which of the following information is not necessary?

a.The face amount of the bonds

b. The selling price of the bonds

c.The face rate of interest on the bonds

d. The length of the interest period, annually or semiannually14. Which of the following statements is correct?

a.Bonds are issued at a price that reflects the stated rate ofinterest on the day the bond is purchased.

b. If the face rate of interest on a bond is not equal to themarket rate of interest, then the company desiring to issue thebonds must reprint its bond certificates.

c.The actual issue price of a bond represents the present valueof all future cash flows related to the bond.

d. The market rate of interest has no bearing on the sellingprice of the bonds.

15. Endeavor Company issued 20-year bonds with a coupon rate of6% when the market rate of interest was 9%. This means that thebonds were issued

a.at a premium. b. at a discount. c.at the face value. d. withan additional 3 years of interest.

16. Which of the following statements regarding leases isfalse?

a. Lease agreements are a popular form of financing the purchaseof assets because leases do not require a large initial outlay ofcash.

b. Accounting recognizes two types of leases--operating andcapital leases.

c. If a lessor classifies a lease as a capital lease, then thelessee records a lease liability on its balance sheet.

d. If a lease is classified as an operating lease, the lesseerecords a lease liability on its balance sheet.

17. Which of the following accounts would not appear on thebalance sheet of a lessee company recording a capital lease?

a. Accumulated depreciation on the leased asset

b. Lease obligation in the current liability section

c. Lease obligation in the long-term liability section

d. Rent expense on the income statement

GOOGLE: Morningstar® Document Research FORM 10-K GENERAL MILLS INC - GIS Filed: June 29, 2017 (period: May 28, 2017) Annual report with a comprehensive overview of the company​ FOR THE ANNUAL REPORT

Instructions: Use the financial statements from the annual report for the year ended 5/28/2017 for General Mills. The Annual Report is on MOODLE. Answer the questions after each question. Use a different font to distinguish your answer from the question. All answers should be in your own words. Do not cut and paste from the annual report. Answers will be graded for content and written communication skills. Use complete sentences.

*****MAKE A NOTATION HERE IF THE DOLLAR AMOUNTS ARE STATED IN MILLIONS.

1. Who are the external auditors for General Mills? What does their Report of Independent Registered Public Accounting firm indicate about the amounts represented in the company’s financial statements?

2. What specific title does General Mills use for its income statement? What type of income
statement does General Mills issue? (multi-step, single–step, or condensed multi-step)
Explain.

3. Did they disclose EPS as discussed in class? Explain. What about the EPS presentation
did we not discuss in ACC 3100?

4. How does General Mills define Cash Equivalents? Is this consistent with the textbook?

5. What is the amount of cash and cash equivalents reported for the year ended at May 28, 2017 and for the year ended at May 29, 2016. By how much has cash and cash equivalents increased/decreased? Show calculations.

6. Create a table illustrating the amount General Mills reports for net cash flows from operating, investing, and financing activities in its statement of cash flow for the year ended May 28, 2017. (Note: Include any effect of exchange rates on cash.) Show calculations. Compare your answers to question 5.


7. What amount is the balance in the Allowance for Doubtful Accounts at 5/28/2017? How is the estimate for Allowance for Doubtful Accounts determined?

8. What was the gross balance of trade receivables at 5/28/2017? What was the dollar amount of bad debt expense for the year ended 5/28/2017? How many accounts were written off (Dollar amount)?

9. What inventory method is used to value inventory in and out of the US?

10. What is the balance of their LIFO reserve account 5/28/2017?

11. What impact (dollar amount and increase or decrease) did the LIFO Reserve adjustment have on Cost of Goods Sold?

12. Which depreciation method(s) is used for PP& E? What estimates are made for the useful life of the different categories of assets?

13. What was total depreciation and amortization expense fiscal year ended 5/28/2017? Where were these amounts reported in the financial statements?

14. What was the major component of total PP&E? What was its amount and what percentage was it of the total for the year ended 5/28/2017?

15. What percentage of total PP&E has been depreciated as of 5/28/2017?

16. Did General Mills capitalize any interest in the fiscal year ended 5/28/2017? If so, what was the amount?

17. Did General Mills dispose of any property and equipment during the year ended 5/28/2017? If so, what was the cash proceeds?

18. Did General Mills issue more new long term debt than they paid in long term debt payments for the year ended 5/28/2017? Explain, show amounts.

19. Create a table to show the components of Comprehensive Income that was attributable to General Mills for the year ending 5/28/2107?

20. Create a table to show the components and amounts of General Mills’ Accumulated Other Comprehensive income(loss) for the year ending 5/28/2017 and 5/29/2016?

21. When does General Mills review impairment for long-lived assets? What is their measurement of an impairment loss based on for long-lived assets?

22. What is the amount of General Mills goodwill? Did General Mills have an impairment loss on Goodwill during fiscal year ended 5/28/2017? What are the standards for testing goodwill(How often and how is it tested)?

23. List any other indefinite life intangibles? How much was the impairment loss General Mills recorded for fiscal year ending 5/31/2015 and why was impairment indicated?

24. The Financial Accounting Standards Board (FASB) issued two new accounting requirements in 2017 that were mentioned in General Mills’ annual report? What are the standards and what is the expected impact of these new standards to the financial statements?

25. General Mills uses the three-level fair value hierarchy for disclosure. What level are the majority of their assets and liabilities measured at 5/28/2017? According to your textbook, how is this level defined?

26. When does General Mills recognize revenue? Do they handle consistently with the material presented in ACC 3100?

27. What was General Mills’ current ratio and working capital as of 5/28/2017? Show calculations.

28. Is the Statement of Changes in Stockholder’s Equity (Consolidated Statements of Total Equity, and Redeemable Interest) consistent with what we learned in class? Explain-indicate similarities and differences.

29. According to the MD&A (begins on p. 15) did General Mills’ Selling, general, and
administration expenses increase or decrease in fiscal year ended 5/28/2017? What was
the primary reason for the change?

30. In two detailed paragraphs, indicate a couple of interesting items you learned while
reading this annual report.

1. For each of the following independent situations (a – k),describe the most appropriate course of action that the auditorsshould take.

A. While reviewing audit documentation, Tyson Michaels, apartner at K&O was reviewing working papers as part of thefirm’s system of quality control. Tyson noted that after releasingan audit report related to the financial statements of a publiclytraded client, it does not appear that any tests were conducted toevaluate the need for impairment of the carrying value of theCompany's property, plant, and equipment. These tests are importantwith respect to supporting the audit opinion.

B. Prior to the audit completion date (April 1, 2015), anauditor learned that their audit client Bubbagump Inc., haddeclared a significant dividend payable to its shareholders. Thisdividend was declared on March 14, 2015, to be paid to Bubbagump’sshareholders of record on May 16, 2015.

C. Pat Colt completed the December 31, 2014, audit of Manningand issued an unmodified opinion on Manning's financial statementsdated March 15, 2015. Colt's opinion was released, along withManning's financial statements, on March 21, 2015. During a reviewof Manning's first quarter 10-Q in late April, Colt became aware ofthe company's settlement with a customer over a product warrantylawsuit; this case had been settled on March 17, 2015. AlthoughColt had received the necessary letter from Manning's attorneys,the letter arrived prior to the settlement of the case and did notmention this development. After reviewing the information relatedto the settlement, Colt does not believe that the settlement ismaterial to Manning's financial condition or results of operationsand believes the opinion on Manning's financial statements is stillsupportable.

D. During a PCAOB inspection, it was determined that WKRP, LLPhad not adequately documented their rationale for not observing thephysical inventory count in its audit of King Manufacturing. Thisdiscovery occurred over a full year after the audit report releasedate. Lebron McWhiney, the lead engagement partner conceded thatthe inventory observation had not occurred and alternativeprocedures were not available due to the client’s accounting recordretention policies. In discussions with the PCAOB investigatorsLebron noted that the rationale, although not documented, was thatKing’s year-end inventory is quantitatively immaterial, at just 1%of total assets.

E. Drew Allison is conducting the audit of Anderson Inc. as ofDecember 31, 2014. At the beginning of the evidence gathering,Allison becomes aware that one of Anderson's major customers(Jones) is experiencing significant financial difficulties. Jonesnormally accounts for 5 percent of Anderson's net sales. Afterperforming the necessary procedures, Allison believes that $2.8million of Jones's receivable balance will ultimately becomeuncollectible. Allison further believes this amount is material toAnderson's financial condition and results of operations.

F. Charles Carmelo is completing the December 31, 2014, audit ofNugget Company. As part of the final procedures, Carmelo hasrequested representations from Nugget's management regarding theirassertion as to the fairness of the financial statements and otherimportant matters addressed by professional standards on February5. Because Nugget's management is attending an analyst briefing inthe upcoming week, Carmelo receives these signed representationsdated February 9, 2015. Because Carmelo had already completed allof the important procedures he released his auditor’s report, datedFebruary 5, 2015, with the financial statements on February 6.

G. Gruden LLP, was auditing Raider Company for the year endedDecember 31, 2014. Gruden plans on completing the audit by February17, 2015. On January 17, 2015, Gruden LLP learned that RaiderCompany activated a portion of its line of credit on January 5,2015, by borrowing $2.5 million. This additional obligationincreased Raider Company's long-term liabilities by 10 percent.

H. Cameron Alta completed the December 31, 2014, audit of SaxeCompany on February 10, 2015. Saxe is planning to release itsfinancial statements, along with Alta's opinion on these financialstatements and internal control over financial reporting, onFebruary 17, 2015. On February 12, 2015, a flood in one of Saxe'swarehouses located in the Gulf Coast region destroyed more than $10million of inventory. The extent to which this loss is recoverablethrough Saxe's insurance is unlikely, Alta believes that this losscould have a material impact on Saxe's financial condition andresults of operations.

I. During the audit of Glomco, Angel Myron identified a numberof misstatements. These misstatements are not material in dollaramount, do not appear to represent any discernable pattern, and donot represent fraudulent activity. As a result, Myron has decidedthat Glomco's financial statements do not need to be adjusted toreflect the effect of these misstatements.

J. Crismus and Stori, LLP is auditing Frozen Pole Desserts (FPD)for the year ended December 31, 2014. On February 9, 2015, theaudit partner in-charge Ralphy, learned of the following eventsduring his meeting with FPD's chief operating officer. A classaction lawsuit was brought against FPD by some of its formeremployees for workplace discrimination. An attorney on behalf of aclass of employees filed the lawsuit on January 10, 2015. Theletter from FPD's attorneys suggested that the amounts are notestimable and the likelihood of a negative outcome cannot bedetermined at this time.

K. Following the completion of the 2014 audit (including therelease of the audit report) of Blankenship Corporation, bySeeanSee, Muzik, and Fakdurry, LLC (SMF). Reese Jill, SMF’s auditpartner met with the manager on the audit engagement to conduct apostmortem on the engagement and identify how changes inBlankenship's operations noted during the most recent audit mayaffect future audits. During this review, Jill became aware thatBlankenship's process for evaluating potential impairment ofgoodwill related to an acquisition made by Blankenship during themost recent year had been considered and calculated by the auditteam, but for unknown reasons the adjustment had not been proposedto the client. Thus, the impairment had not been properly disclosedor accounted for in the financial statements. Jill believes thatthe results of the procedure is important in supporting the opinionon Blankenship's financial statements and notes that Blankenship’smanagement would probably be receptive to adjusting thefinancials.

Required: Unless otherwise noted, assume that each scenarioaffect (are material) to the Company’s financial statements, andthere are persons who continue to rely on the financial statements.For each of the preceding items, determine:

I. whether the event described should be classified as:

A. Subsequent Event

B. Subsequently Discovered Event

C. Omitted Procedure

D. None of the above

II. what actions the auditor should take after the firm'squality review identified these issues:

1) Disclosure in financial statements

2) Adjustment to and/or disclosure in the financialstatements

3) No further action is necessary (specific auditprocedures)

4) Determine if alternative procedures are available, if so takeaction 5, if procedures are not available, withdraw the auditor’sreport

5) Perform procedures related to the item and revise theauditor’s report date if necessary

6) Perform procedures related to the items and if facts wouldresult in revision of auditors’ report or financials, then notifyindividuals relying on financials and issue revised financialswhich provide disclosure of facts

7) Not applicable

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