ACC 318 Module Three Assignment Template

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Apr 3, 2024

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ACC 318 Module Three Assignment Template Complete this template by replacing the bracketed text with the relevant information. Operating Activities 1. Identify the method of computing net cash provided by operating activities each company used. Both companies present their net cash provided by operating activities under the “Operating activities” section of the Consolidated Statements of Cash Flows. The key line item indicating net cash provided by operating activities is “Net Cash Provided by Operating Activities”. Both companies seem to follow the indirect method of presenting cash flows from operating activities, where the net income is adjusted for non-cash items and changes in working capital to arrive at the net cash provided by operating activities. 2. Calculate the amounts of cash provided by operating activities reported by each company in 2020. PepsiCo. Net Income $7,175 Depreciation and amortization 2,548 Share-based compensation expense 264 Restructuring and impairment charges 289 Cash payments for restructuring charges (255) Inventory fair value adjustments and merger and integration charges 255 Cash payments for merger and integration charges (131) Pension and retiree medical plan expenses 408 Pension and retiree medical plan contributions (562) Deferred income taxes and other tax charges and credits 361 Net tax related to the TCJ Act N/A Tax payments related to the TCJ Act (78) Other net tax benefits related to international reorganizations N/A Change in assets and liabilities: Accounts and Notes receivable (420) Inventories (516) Prepaid expenses and other current assets 26 Accounts payable and other current liabilities 766 Income taxes payable (159) Other, net 642 Net Cash Provided by Operating Activities 10,613

Coca-Cola Company Consolidated Net Income $7,768 Depreciation and Amortization 1,536 Stock-based compensation expense 126 Deferred income taxes (18) Equity (income) loss – net of dividends (511) Foreign currency adjustments (88) Significant (gains) losses – net (914) Other operating charges 556 Other items 699 Net change in operating assets and liabilities 690 Net Cash Provided by Operating Activities 9,844 3. Explain the two companies’ trends in net cash provided by operating activities over the period 2018 to 2020. The net cash provided by operating activities has shown a consistent increase from 2018 to 2019 and further increased in 2020. PepsiCo exhibited a positive trend in generating cash from its operating activities over the specified period. Both companies experienced growth in net cash provided by operating activities from 2018 to 2019. The Coca-Cola Company saw a slight decrease in 2020, while PepsiCo continued to show growth. The trends suggest variations in the companies’ ability to generate cash from their core operating activities over the specified period. Investing Activities 1. Identify the most significant item in the investing activities section reported by each company in 2020. In the investing activities section for The Coca-Cola Company in 2020, the most significant item is likely the “ Acquisitions of businesses, equity method investments, and nonmarketable securities ”, which is reported as a cash outflow of $1,052 million. This indicates the company’s investment in acquiring businesses, equity method investments, and nonmarketable securities during the specified period. For PepsiCo, Inc. in 2020, the most significant item in the investing activities section is the “ Acquisitions, net of cash acquired, and investments in noncontrolled affiliates ”, which is reported as a cash outflow of $6,372 million. This item represents the cash spent on acquiring businesses and making investments in noncontrolled affiliates during the year. Financing Activities 1. Identify the most significant item in the financing activities section reported by each company in 2020. In the financing activities section for The Coca-Cola Company in 2020, the most significant item is likely the “ Issuances of debt ”, reported as a cash inflow of $26,934 million. This indicates the company raising funds through the issuance of debt during the specified period.

For PepsiCo, Inc. in 2020, the most significant item in the financing activities section is the “ Proceeds from issuances of long-term debt ”, reported as a cash inflow of $13,809 million. This item represents the cash generated by the company through the issuance of long-term debt during the year. Depreciation and Amortization 1. Identify what activity would depreciation and amortization be reported on in each company’s statement of cash flow using the indirect method. In The Coca-Cola Company’s statement of cash flows using the indirect method, depreciation and amortization would be added back to the net income in the operating activities section. Depreciation and amortization are non-cash expenses, so they are added back to reconcile net income to the net cash provided by operating activities. The general format for the adjustment in the operating activities section: Net Income + Depreciation ∧ Amortization + Other NoncashCharges − Other Changes ∈ Operating Activitie . Similarly, in PepsiCo, Inc.’s statement of cash flows using the indirect method, depreciation and amortization would be added back to the net income in the operating activities section. The adjustment is made to reflect the cash impact of these non-cash expenses. The adjustment formula for the operating activities section is as follows: Net Income + Depreciation ∧ Amortization + Other NoncashCharges − Other Changes ∈ Operating Activitie . In both cases, the goal is to provide a clearer picture of the cash generated or used by the company’s core operating activities by adjusting for non-cash items. 2. Explain why each company reported on depreciation and amortization where they did in their statement of cash flows. The Coca-Cola Company reported depreciation and amortization in the operating activities section of its statement of cash flows for the following reasons:  Non-Cash Expense Adjustment : Depreciation and amortization are non-cash expenses. Including them in the operating activities section allows the company to reconcile net income to net cash provided by operating activities. Since these expenses don’t involve actual cash outflows, adding them back provides a more accurate representation of the cash generated by the company’s core operating activities.  Operating Activity Impact : Depreciation is often associated with the wear and tear of physical assets (like machinery and equipment), while amortization typically involves intangible assets (like patents or trademarks). Both are considered part of the ongoing cost of doing business. By adding back depreciation and amortization to net income, the statement of cash flows reflects the cash impact of these non-cash expenses, giving a clearer picture of the company’s cash-generating ability from its operational activities.

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