The Coca-Cola Company and PepsiCo, Inc. The financial statements of Coca-Cola an
ID: 3012713 • Letter: T
Question
The Coca-Cola Company and PepsiCo, Inc. 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. (a) What are the primary lines of business of these two companies as shown in their notes to the financial statements? (b) Which company has the dominant position in beverage sales? (c) How are inventories for these two companies valued? What cost allocation method is used to report inventory? How does their accounting for inventories affect comparability between the two companies? (d) What accounting policy changes do the companies discuss? (Kieso 72) Kieso, Donald E., Jerry Weygandt, Terry Warfield. Intermediate Accounting, 16th Edition. Wiley, 2016-03-21. VitalBook file.
Explanation / Answer
a) The primary line of business for Coca-Cola is to be the largest manufacturer, distributor, and marketer of non- alcoholic beverage concentrates and syrups in the world. Coca- Cola strives to remain theworld’s most valuable brand of nonalcoholic beverage providers.Theysupply the world with four of the top five non-alcoholic sparklingbrands(Coke, Diet Coke, Fanta, and Sprite).
Coke manufactures beverage concentrates and syrups ultimately delivered to consumers through bottles, cans and fountain drinks.Coke licenses more than 400 brands including diet beverages, waters, juices, and sports drinks.
The primary line of business for Pepsi company is to manufacture, market and sell a variety of salty of salty, sweet and grain based snacks,carbonated and noncarbonated beverages and foods through our North American and international business divisions. Pepsi has four differentdivisions within the company.Frito Lay (the most profitable), PepsiCo beverage and Quaker Foods are all based in North America while PepsiCois based internationally.
b) Coca- Cola holds the dominate position in beverage sales throughaccumulating a significantly greater Net Revenue(24.088 billion to Pepsi’s12.73 billion), gross profit(15.924billion to Pepsi’s 5.92 billion), and netincome(5.08 billion to Pepsi’s .522 billion) in 2006 compared to the PepsiBottling Group financial statements to limit Pepsi to just beverages.
c) Coke’s inventory is at lower of cost or market, and its cost is determined using FIFO or average cost.
Pepsi’s inventory is at lower of cost or market, and its cost is determined using FIFO or LIFO.
d) Based on the above information, we know that one company will have a higher CoGS while the other will have a higher amount in ending inventory. In turn, this will have an effect onthe net income of the company.