Financial Reporting Problem

Financial Reporting Problem 2

Coca-Cola had total assets of $79,974,000 reported in December 2011 and $72,921,000 in December 2010. Pepsi had total assets of $72,882,000 in December 2011 and $68,153,000 in December 2010. Assets are important because it shows what the company owns that has value. Assets add value to a company that in turn helps bring in investors.

Coca-Cola had a total of $12,803,000 in cash and cash equivalents in December 2011 and $8,517,000 in December 2010. Pepsi had a total of $4,067,000 in cash and cash equivalents in December 2011 and $5,943,000 in December 2010. Cash and cash equivalents are assets a company owns that are cash or things that can be converted to cash immediately. It is good for both companies to have cash and cash equivalents also known as liquidity in case of an unanticipated event that may occur.

Both Coca-Cola and Pepsi compute the cost of its inventory at the lower of cost or market (LCM). This method is more conservative method to compute its inventory. Coca-Cola uses the lower of cost or market method along with the first in, first out (FIFO) method. Pepsi uses the lower of cost of market method along with either the first in, first out (FIFO) method or the Last in, first out (LIFO) method. Using the first in, first out method is a more aggressive method, especially during rising prices because it would show a lower cost of goods sold, thus resulting in a higher net income.

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