Concept explainers
Real World Case 7–4
Sales returns; Green Mountain Coffee Roasters
• LO7–4
Real World Financials
The following is an excerpt from Sam Antar, “Is Green Mountain Coffee Roasters Shuffling the Beans to Beat Earnings Expectations?” (Phil’s Stock World delivered by Newstex, May 9, 2011.)
On May 3, 2011, Green Mountain Coffee Roasters (NASDAQ: GMCR) beat analysts’ earnings estimates by $0.10 per share for the thirteen-week period ended March 26, 2011. The next day, the stock price had risen to $11.91 per share to close at $75.98 per share, a staggering 18.5% increase over the previous day’s closing stock price. CNBC Senior Stocks Commentator Herb Greenberg raised questions about the quality of Green Mountain Coffees earnings because its provision for sales returns dropped $22 million in the thirteen-week period. He wanted to know if there was a certain adjustment to reserves (“a reversal”) that helped Green Mountain Coffee beat analysts’ earnings estimates. . . .
During the thirteen-week period ended March 26, 2011, it was calculated that Green Mountain Coffee had a negative $22.259 million provision for sales returns. In its latest 10-Q report, Green Mountain Coffee disclosed that its provision for sales returns was $5.262 million for the twenty-six week period ending March 26, 2011, but the company did not disclose amounts for the thirteen-week period ended March 26, 2011. In its previous 10-Q report for the thirteen-week period ended December 25, 2010, Green Mountain Coffee disclosed that its provision for sales returns was $27.521 million. Therefore, the provision for sales returns for the thirteen-week period ended March 26, 2011 was a negative $22.259 million ($5.262 million minus $27.521 million).
Required:
1. Access EDGAR on the Internet. The web address is www.sec.gov.
2. Search for Green Mountain Coffee Roasters, Inc.’s 10-K for the fiscal year ended September 25, 2010 (filed December 9, 2010). (Note: the company now is named Keurig Green Mountain, Inc.) Answer the following questions related to the company’s 2010 accounting for sales returns:
a. What type of an account (for example, asset, contraliability) is Sales Returns Reserve? Explain.
b. Prepare a T-account for fiscal 2010’s sales returns reserve. Include entries for the beginning and ending balance, acquisitions, amounts charged to cost and expense, and deductions.
c. Prepare journal entries for amounts charged to cost and expense and for deductions. Provide a brief explanation of what each of those journal entries represents.
d. For any of the amounts included in your journal entries that appear in Green Mountain’s statement of cash flows on page F-8, explain why the amount appears as an increase or decrease to cash flows.
3. Now consider the information provided by Antar in the excerpt at the beginning of this case.
a. Prepare a T-account for the first quarter of fiscal 2011’s sales returns reserve. Assume amounts associated with acquisitions and deductions are zero, such that the only entry affecting the account during the first quarter of fiscal 2011 is to record amounts charged or recovered from cost and expense. Compute the ending balance of the account.
b. Prepare a T-account for the second quarter of fiscal 2011’s sales returns reserve. Assume amounts associated with acquisitions and deductions are zero, such that the only entry affecting the account during the first quarter of fiscal 2011 is to record amounts charged or recovered from cost and expense. Compute the ending balance of the account.
c. Assume that actual returns were zero during the second quarter of fiscal 2011. Prepare a
d. Speculate as to what might have caused the activity in Green Mountain’s sales returns account during the second quarter of fiscal 2011. Consider how this result could occur unintentionally, or why it might occur intentionally as a way to manage earnings.
Want to see the full answer?
Check out a sample textbook solutionChapter 7 Solutions
INTERMEDIATE ACCOUNTING <CUSTOM LL>
- Problem 9.6 Nynet, Inc., paid a dividend of $4.40 last year. The company's management does not expect to increase its dividend in the foreseeable future. If the required rate of return is 19.0 percent, what is the current value of the stock? (Round answer to 2 decimal places, e.g. 15.25.) Current value Click if you would like to Show Work for this question: Open Show Workarrow_forwardProblem 7-24 Negative Growth [LO 1] You've collected the following information from your favorite financial website. Dividend PE Yield 2.6 3.8 52-Week Price LO 10.43 Acevedo .36 33.42 69.50 14.12 Manta Energy .97 20.74 Winter Sports .32 Hi 77.40 55.81 130.93 50.41 35.00 Stock (Dividend) Georgette, Incorporated 1.54 YBM 2.00 Answer is complete but not entirely correct. Required return 4,40 2.2 6.2 1.5 Ratio 6 10 10 6 28 Close Price 13.90 40.43 88.97 15.60 77 Net Change -.24 -.01 According to your research, the growth rate in dividends for Manta Energy for the previous 10 years has been negative 10 percent. If investors feel this growth rate will continue, what is the required return for the stock? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. 3.07 -.26 .18arrow_forwardEsc Chapter 12 Practice Problems 1. Suppose a stock had an initial price of $77 per share, paid a dividend of $1.35 per share during the year, and had an ending share price of $83. Compute the percentage total return. Q Search 1 Q A N @ 2 W S F2 X # 3 E F3 D $ 4 R F DII % 5 F5 T G * F6 A 6 Y B * H & 7 PrtScn U N * 8 Home 1 M 9 Page K End о F10 ) 0 PgUp F11 Parrow_forward
- Q11 Andy Bailey recently graduated from the University of MF and is joining the Bank of MF as a financial analyst. He is assigned to conduct relative valuation to determine if the implied stock price per share of Amazon.com Inc. (ticker: AMZN). Bailey collects the following information about Amazon and its comparable companies. He notices that the earnings per share of NWSA and DXLG are negative. However, Bailey believes it is normal that some companies have negative EPS due to reasons such as asset impairment or corporate restructuring cost. Therefore, Bailey decides he should still include NWSA and DXLG when calculating the benchmark price-earnings ratio. Q: Is Bailey's decision on including NWSA and DXLG when calculating the benchmark price-earnings ratio justifiable? Why? Target Comparable AMZN VIAC GOOGL YNDX NWSA MSFT CHTR IBM DXLG Price 3256.93 37.26 1752.64 69.58 11.86 203.51 661.55 125.88 0.70 Basic EPS 42.66 3.93 59.15 1.03 -2.16 5.82 15.85 6.28 -0.89 Diluted EPS 41.83 3.92…arrow_forward6 Problem 8-23 Using Stock Quotes [LO4] You have found the following stock quote for RJW Enterprises, Incorporated, in the financial pages of today's newspaper. Skipped 52-WEEK HI LO 48.61 29.56 STOCK (DIV) RJW 1.40 YLD % PE 3.6 19 VOLUME 100s 10 NET CLOSE CHANGE ?? -41 eBook Hint Print References a. What was the closing price for this stock that appeared in yesterday's paper? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. If the company currently has 18 million shares of stock outstanding, what was net income for the most recent four quarters? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) a. Yesterday's closing price b. Net incomearrow_forward2 12 Stock Market Problems 1. HBC 12 Canadian Dollars $ 20.00 $ 10.00 $16.00 &$14.00 $ 12.00 $ 10.00 $ 8.00 $ 6.00 HBC-T (CS) - Jan 2001 Hudson's Bay Co. www Jul 2001 Jan 2002 Jul 2002 Jan 2003 Jul 2003 a) What are the maximum and minimum prices that this company shares have reached? When did they reach these levels? Maximum Price - $20.00 $6.00 Minimum Price - Date- Date - 1+1 August 2002 october 2002 b) Joanne bought 1000 shares of HBC in July 2001. How much did this cost her? Share Price - c) Joanne sold all 1000 shares of HBC in July 2003. How much did she get back from this sale?arrow_forward
- Problem 11-16 Scenario Analysis (LO3) The common stock of Escapist Films sells for $25 a share and offers the following payoffs next year: Dividend Stock Price Boom $ 0 $ 18 Normal economy 1 26 Recession 3 34 The common stock of Leaning Tower of Pita Inc. is selling for $80 and offers these payoffs next year: Dividend Stock Price Boom $ 8 $ 240 Normal economy 4 90 Recession 0 0 Required: b-2. Calculate the expected rate of return and standard deviation of a portfolio half invested in Escapist and half in Leaning Tower of Pita. All three economic scenarios are equally likely to occur.arrow_forwardQS 11-24 (Algo) Price-earnings ratio LO A1 Compute Topp Company's price-earnings (PE) ratio if its common stock has a market value of $23.79 per share and its earnings per share (EPS) is $3.90. Topp's key competitor, Lower Deck, has a price-earnings (PE) ratio of 9.5. For which company does the market have higher expectations of future performance? 52 Complete this question by entering your answers in the tabs below. Price Earnings Future Ratio Performance Compute Topp Company's price-earnings (PE) ratio if its common stock has a market value of $23.79 per share and its earnings per share (EPS) is $3.90. Price Earnings Ratio Choose Numerator: I Choose Denominator: = Price Earnings Ratio Price Earnings Ratio Price Earnings Ratio Future Performance > < Prev 7 of 7 Next here to search 99+ 69°F Cloudy 4- 41 144 144 96 5 3 41 6 RI 7T Y PI INarrow_forwardCH.8 STOCK MARKET, HW4, DUE IS ON MONDAY, MARCH 25, BEFORE 11AM Please show your calculation step by step. Otherwise, you will not get any credit on that question. 1) You buy a stock for $34 per share and sell it for $36 after you collect a $1.00 per share dividend. Your pretax capital gain yield is and your pretax dividend yield is?. 2) You buy a stock for $30 per share and sell it for $33 after holding it for slightly over a year and collecting a $0.75 per share dividend. Your ordinary income tax rate is 28 percent and your capital gains tax rate is 20 percent. Your after-tax rate of return isarrow_forward
- Problem 10-1 Calculating Returns [LO 1] Suppose a stock had an initial price of $93 per share, paid a dividend of $1.90 per share during the year, and had an ending share price of $111. a. Compute the percentage total return. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What was the dividend yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What was the capital gains yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Percentage total return % b. Dividend yield % Capital gains yield % с.arrow_forwardQuestion 5 How much will an investor pay for a preferred stock that pays a $1,50 per share dividend if the investor requires a 11.5% return? O $13.04 O $1.35 O $1.67 O $14.54 O None of the listed items is correct L» A Moving to another question will save this response. MacBook Air 77 888 esc F3 F4 F5 F2 # $ % 3 4arrow_forwardQ46 What is the expected dividend at the end of the first year of a stock that just gave a dividend of OMR 2.500 with a growth rate of the company is 3%? a. OMR 2.427 b. OMR 2.575 c. OMR 3.53 d. OMR 1.47arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education