What is the nature of General Mills’ business? That is, based on what you know about the company and on the accompanying financial statements, how does General Mills make money? General Mills, Inc. has three segments. U. S. Retail sells ready-to-eat cereals, meals, yogurt, organic foods, etc. The International segment includes retail business in Canada, Europe, Latin America and the Asia/Pacific region. Bakeries and Foodservice sells to retail and wholesale bakeries, and convenience stores. The company makes money through producing various food and products and distributing them all over the world. . What financial statements are commonly prepared for external reporting purposes? What titles does General Mills give these statements? What does “consolidated” mean? Balance sheet, income statement, the statement of cash flow and the statement of shareholders’ equity are commonly prepared for external reporting purposes. Titles that General Mills give these statements are consolidated balance sheets, consolidated statements of earnings, consolidated statements of cash flows and consolidated statements of stockholders’ equity and comprehensive income. Consolidated” means that those financial statements includes General Mills’ subsidiary companies. c. How often do publicly traded corporations typically prepare financial statements for external reporting purposes? SEC requires quarterly financial statements 10-Q and 10-K. All public companies should prepare their financial statements for external reporting purposes based on this timeline. d. Who is responsible for the financial statements? Discuss the potential users of the General Mills financial statements and the type of information they are likely interested in.
The management of General Mills, Inc. is responsible for the fairness and accuracy of the consolidated financial statements. Potential users of these financial statements could be shareholders, creditors, suppliers, employees, competitors, customers and regulators who want to use them to better understand the company’s financial position and related performance. Users are likely interested in information that will assess the company’s liquidity, solvency, risk and return, etc. Therefore, they can know more about how is the company financed and the availability of cash to pay debt from the balance sheet.
They can know exactly about allocation of the use of cash for different activities from the statement of cash flows. Income statement will provide the information about the revenues and expenses of the company. They can also access information associated with dividend paid and retained earnings. e. Who are General Mills external auditors? Describe the two “opinion” letters that General Mills received in 2006. In your own words, what do these opinions mean? Why are both opinions dated several months after General Mills’ year end? KPMG LLP is General Mills’ external auditor.
The first opinion letter indicates that General Mills and subsidiaries have maintained effective internal control. The other opinion letter talks about that KPMG has examined the company’s consolidated financial statements and financial statement schedule. The public accounting firm confirms that General Mills’ financial statements are well-presented in all material respects and consisted with U. S. GAAP’ criteria. These opinions mean that the company has followed GAAP rules and correctly reported the amount of each item associated its financial performance.
The company’s consolidated financial statements came to public on the end of May, while the reports from the auditor came out on July 27, 2006. The duration time is where the accounting firm audits the company’s book. The firm gave their opinion on the date July 27. giv. How is General Mills financed? What proportion of total financing comes from non-owners? General Mills financed its assets mainly with long-term debt. On its balance sheet, current portion of long-term debt and long-term debt make up a good proportion of total liabilities. 31. 7% of total financing comes from non-owners. i. Review the revenue recognition policies of General Mills discussed in Note 1. Discuss how the recognition policies for recording net sales and the treatment of returns and promotions are consistent with the revenue recognition criteria under GAAP. General Mills recognizes sales revenue when shipments are accepted by their customers. Revenue recognition generally occurs when realized or realizable and when earned. In this particular case, revenue recognizes when realizable because transactions are completed and customers are the owner of sales items when they receive shipments.
Thus, this is consistent with the revenue recognition criteria under GAAP. According to Note 1, “Sales are reported net of consumer coupon, trade promotion and other costs, including estimated returns”. For each scenario, General Mills has specific policy as described in the note. Coupons and trade promotions expenses are based on related estimated item. The company generally doesn’t allow for returns, which are recorded as reductions to selling prices. These practices are consistent with the revenue recognition criteria under GAAP. iv. In fiscal 2005, General Mills separately reports the following three items: Restructuring and other exit costs, divestitures, and Debt repurchase costs. Why didn’t the company just include all of these amounts within the line item for Selling, general and administrative expenses? Restructuring and other exit costs, divestitures, and Debt repurchase costs are not ordinary items, that is to say they don’t occur regularly. Hence, they are separately presented from selling, general and administrative expenses.
Selling, general and administrative expenses are expenses occur based on continuous operating, so the amount is quite stable and expected. However, unordinary costs are different from year to year and will cause confusion to users of financial report if they are not excluded. For example, in 2005, General Mills had a large amount of debt repurchase costs and restructuring and other exit costs, which reduced their net earnings. The company also have a large amount of divestitures that add back their lost on net income. j.
Several notes to the financial statements refer to the use of “estimates”. Which accounts on General Mills’ balance sheet require estimates? List as many accounts as you can. Are any accounts estimate-free? 1) Receivable. When presenting net receivable account, the company should deduct allowance for bad debts which are estimated amounts. 2) Inventory. Cost need to be estimated at the end of the year to recalculate the value of the inventory. 3) Land, Buildings and Equipment. Depreciation expense is calculated based on straight-line or other method. ) Current liabilities. Companies will estimate the amount that they owe for bills which they haven’t received or paid. 5) Long-term debt. Companies use estimation to decide what amount of debt they will pay off during each period and record. Almost all types of accounts involve different degrees of estimation, especially when the amount is large. Users of financial statements should pay attention to notes disclosure about the estimating method and how it impact the company’s financial performance.