Concept explainers
Videos
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
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 solution
Chapter 7 Solutions
INTER. ACCOUNTING - CONNECT+ALEKS ACCESS
- Sh11arrow_forwardProblem 11-8 Real versus Nominal Returns (LO2) You purchase 100 shares of stock for $50 a share. The stock pays a $4 per share dividend at year-end. a. What is the rate of return on your investment if the end-of-year stock price is (1) $46; (i) $50; (ii) $55? b. What is your real (inflation-adjusted) rate of return if the inflation rate is 6%? Complete this question by entering your answers in the tabs below. Required A Required B What is the rate of return on your investment if the end-of-year stock price is (i) $46; (i) $50; () $55? Note: Leave no cells blank - be certain to enter "0" wherever required. Enter your answers as a whole percent. Stock Price: 46 50 55 Rate of Return % %arrow_forwardProblem 12-16 Arithmetic and Geometric Returns [LO1] A stock has had the following year-end prices and dividends: Year Price Dividend $ 1 43.27 23456 2 48.25 $.45 3 57.17 .48 4 45.25 .60 5 52.17 .65 .73 6 61.25 What are the arithmetic and geometric average returns for the stock? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Arithmetic average return 9.56% Geometric average return %arrow_forward
- 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. 52-WEEK HI LO 42.76 26.00 STOCK (DIV) RJW 1.30 YLD % PE 3.8 17 VOLUME 100s 9 NET CLOSE CHANGE ?? -.37 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 16 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_forwardX3arrow_forwardProblem 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_forward
- Esc 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_forwardHelp thanks financearrow_forwardQ11 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_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:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education