DECISION CASE 3

DC 7-1

1. Kraft’s balance in Allowance for Doubtful Accounts at 2010 year-end = $246 ;

and at 2009 year-end = $121.

2. Net realisable value of Kraft’s receivables at 2010 year-end = $6,539 ;

And at 2009 year-end = $5,197.

3. Recognition of bad debt expense during the year 2009-10 increased the allowance
account.
Write-offs can decrease the allowance account.
Net increase in the account means fewer accounts have been written off against a higher
number of accounts being estimated as bad debts during the year.

DC 7-2

1. Apple spent $57,793 in 2010 to purchase marketable securities. This investment is

higher than that of 2009 by $11,069 and that of 2008 by $34,828.

2. Apple received $24,930 from marketable securities that matured in 2010. This receipt is
higher than that of 2009 by $5,140 and that of 2008 by $13,126.

3. Marketable securities which are investments in other companies are held till maturity
which could last beyond 1 year. They are long term investments.
Those held for a year or less and are highly liquid are sold off.

DC 8-2

1. The lists are similar in the sense that the total value of assets less depreciation is almost
same for both the companies, ie, $ 3,127.7m and $ 3,128m.
They differ in the amount of accumulated depreciation. This could be because they
follow different depreciation methods or estimated lives are different.
2. Kellogg’s follows double declining method for tax reporting purposes, ie, reduce taxable
income.
General Mills follows straight line method for financial reporting purposes, ie, to show
higher net income.

3. The book values of property and equipment for both the companies are almost same at
$ 3,127.7m and $ 3,128m.
Accumulated depreciation for Kellog’s is $ 4,690m and for General Mills is $ 3,822m.
It tells us that in spite of being in the same industry and holding equally valued assets,
they use different depreciation methods. One focuses on showcasing better financial
performance through a higher reported financial income while the other focuses on
reducing tax dues by reporting a lower taxable income.

4.
Estimated Life (in years)

Asset General Mills Asset Kellogg’s

Buildings 40-50 Manufacturing 5-20

machinery &
equipment

Equipment 3-10 Office equipment 4-5

Computer 3-5
equipment &
Capitalized
software

Building 15-30
components

Building structures 50

5. Yes, assets of value $ 474m were purchased by Kellogg and of value $ 649.9m were
purchased by General Mills. GM also sold assets at $ 7.4m.

Gain or loss on sale of long-term of assets are found in the Operating activities section of
the Cash Flow Statement.