Three items that are not included in net income are included as part of other comprehensive income. These are (a) gains or losses from holding certain marketable securities, (b) certain gains or losses from foreign currency effects on foreign subsidiaries, and (c) certain changes in the minimum liability for employee pensions. These items are reported as part of other comprehensive income that is included in stockholders’ equity. Gains and losses from holding marketable securities are discussed in Chapter F11. Read more…
Minority interest, also known as noncontrolling interest (or NCI), represents the portion of a corporation’s subsidiaries not owned by the parent corporation. Krispy Kreme reports $2,491,000 of minority interest on its 2002 balance sheet. This is the value of that portion of the subsidiaries not owned by Krispy Kreme. Note that the balance sheet amount refers to the book value of the subsidiary (assets less liabilities) owned rather than to the portion of income associated with noncontrolling owners that is reported on the income statement. Valuation of noncontrolling interest is a topic covered in advanced financial accounting texts. Read more…
Other Current Liabilities
The current liabilities listed on Krispy Kremes balance sheet are similar to those we have discussed for Mom’s Cookie Company. The titles used for these liabilities are different, however. Accrued expenses is simply another name for liabilities such as wages payable and rent payable. One of the challenges of reading financial statements is becoming familiar with the wide variety of labels companies use. Read more…
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Other Long-Term Assets
In addition to property and equipment, long-term assets may include non-current receivables; fixed assets held for sale; prepaid expenses not expected to be consumed in the next fiscal year; long-term legal rights such as patents, trademarks, and copyrights; and long-term investments. These types of assets may be listed on the balance sheet under separate headings if they constitute a significant portion of a company’s assets. Otherwise, they often are listed simply as Other Assets. Read more…
Like the income statement, the balance sheet may appear in a variety of formats. Companies may use reporting rules that differ from those previously described. Some types of companiesmany utilities, for examplereport fixed assets prior to current assets and report stockholders’ equity prior to liabilities. Companies in the United States often use formats that differ from those used in other countries. The items included on a balance sheet depend on the activities of a company. Read more…
The portion of long-term debt that will become due and be paid during the next year is a current liability. Exhibit 3 identifies this amount as “Notes payable, current portion.” For example, assume Mom’s Cookie Co. issued $80,000 in long-term notes payable during 2004. The notes are to be repaid in annual installments of $5,000. Therefore, $5,000 of the notes would be reported as a current liability on a balance sheet prepared at December 31, 2004. The unpaid balance would be reported as a long-term liability. From Exhibit 3 you can determine that $1,800 ($80,000 borrowed less $5,000 current portion and $73,200 long-term portion) of the notes was repaid in 2004, the year of issue. Read more…
Property and Equipment
Property and equipment, often called fixed assets or plant assets, are long-term, tangible assets that are used in a company’s operations. (Long-term intangible assets are those that provide benefits to the company for more than one fiscal period.) Unlike inventory, these assets are not intended for resale. U.S. GAAP require fixed assets, other than land, to be depreciated over their estimated useful lives. Depreciation allocates the cost of these assets to the fiscal periods that benefit from their use as a means of matching
expenses with revenues. The net value of fixed assets is the cost of the assets minus accumulated depreciation. Read more…
A balance sheet reports the asset, liability, and owners’ equity account balances for a company at the end of a fiscal period. Exhibit 3 provides a balance sheet for Mom’s Cookie Company for the year ended December 31, 2004. Read more…
Krispy Kreme also reports “minority interest” as a separate item. Minority interest on the income statement is that portion of the income of Krispy Kreme’s subsidiaries that cannot be claimed by Krispy Kreme. For example, if Krispy Kreme owns 90% of a subsidiary and the subsidiary’s net income is $1 million, Krispy Kreme’s share of the net income would be $900,000. The remaining $100,000 would be the minority interest
in the income. Because the reported revenues and expenses on the consolidated statement include the subsidiary amounts in them, Krispy Kreme subtracts the minority interest on the income statement. This indicates Krispy Kreme does not have a claim to that share of subsidiary income. Read more…