DECISION CASE 3-1

1) Cost of goods sold is the largest expense incurred by both the companies in the year 2010,
with Kellogs having $7108 and General Mills having $14795.5 each. In general, for many of
the big firms the cost of goods sold is the largest expense as the cost of expense includes all
the costs and expenses directly related to the production of goods.
2) Selling, general and administrative expense (SGA) RATIO = SGA/Net Sales.

For Kellog’s 2010 2009

SGA 3299 3390
Net Sales 12397 12575
SGA RATIO 0.266:1 (or)26.6% 0.269:1 (or) 26.9%

The SGA ratio has decreased for Kellog’s in the year 2010 when compared to 2009

For General Mills 2010 2009

SGA 3236.1 2951.8
Net Sales 14796.5 14691.3
SGA RATIO 0.219:1 (or) 21.9% 0.201:1 (or) 20.1%

The SGA ratio has increased for General Mills in the year 2010 when compared to 2009

For both the years General Mills has the lowest ratio.

3) INCOME TAX RATIO = INCOME TAX / INCOME BEFORE INCOME TAX

For Kellog’s 2010 2009

Income tax 502 476
Income before income tax 1742 1684
INCOME TAX RATIO 0.288 (or) 28.8% 0.283 (or) 28.3%

For General Mills 2010 2009

Income tax 771.2 720.4
Income before income tax 2204.5 1942.2
INCOME TAX RATIO 0.35 (or) 35% 0.371 (or) 37.1%

The Kellog’s company ratio has increased in the year 2010 while the General Mills ratio has
decreased in the year 2010.

In both the years Kellog’s ratio is less when compared to the General Mills ratio.

DECISION CASE 3-2

1) The amount spent on the Purchases of land, buildings and equipment is $649.9 million

DATE ACCOUNT DEBIT CREDIT

31- Land, Buildings &
May Equipments $649.9  
   Cash   $649.9

2) The amount spent to pay the long-term debt is $906.9 million

DATE ACCOUNT DEBIT CREDIT

31-
May Long-term debt $906.9  
  Cash   $906.9

DECISION CASE 4-1

1) Kellog’s recognizes revenue when the product is delivered to the customer while General
Mills recognizes revenue when the shipment is acknowledged by the customer. There are
not much significant differences in the revenue recognition policies of these companies.

2) The accounts receivable contribution to total current asset is more for the Kellog’s company
than the General Mills

GENERAL
  KELLOGS MILLS
ACCOUNTS RECEIVABLE 1190 1041.6
TOTAL CURRENT ASSETS 2915 3480
PERCENT OF AR IN THE CURRENT ASSETS % 40.82% 29.93%

DECISION CASE 5-1

1) Both Kellog’s and General Mills are manufacturing companies as they both have recorded
the cost of goods sold/cost of sales in their income statement.

2)
GENERAL
  KELLOGS MILLS
INVENTORIES 1056 1344
TOTAL ASSETS 11847 17678.9
PERCENT OF INVENTORIES IN THE
CURRENT ASSETS % 8.91% 7.6%

3) Kellog’s uses the Weighted Average Cost inventory method. The advantage of using this
method is that it reduces the effect of unusual price hikes and drops in the market.

4) General Mills uses the LIFO inventory method inside United States while it uses the FIFO
method outside the United States. It is difficult to compare the two companies on their
inventories as they use different inventory valuation methods as the ending inventory
balance and the cost of goods sold value differs based on the method used.
5) The companies may adopt the Perpetual inventory system because of the large volume of
inventories available and also due to the computerized nature making the accounting much
simpler.