Significant Influence Effects: Coca-Cola
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Advanced Accounting
Significant influence effects: Coca-Cola
For the year ended December 31, 2007, Coca-Cola used the equity method to account for its 35% interest in Coca-Cola Enterprises (CCE). For the year ended December 31, 2007, Coca-Cola reported net income of $5,981 million, 2,313 million average common shares outstanding, and $2.59 basic earnings per share.
During 2007, CCE reported net income of $711 million and paid total dividends of $116 million. On December 31, 2007, CCE’s retained earnings balance was $1,527 million.
1. Calculate Coca-Cola’s 2007 net income and earnings per share as if Coca-Cola had accounted for its investment in CCE as securities available-for-sale and CCE had declared $0 million dividends.
Coca-Cola "Significant Influence"
CCE Declares $0 Dividends Coca-Cola's reported income: 2007 $5,981 Less: Equity income in CCE -$249 Plus: CCE dividends $0 Coca-Cola's adjusted SFAS net income:2007 $5,732
Average common shares outstanding: 2007 2,313 Basic earnings per share $2.48
EPS difference: pro forma / $2.59 as reported -4.3%
2. Calculate Coca-Cola’s 2007 net income and earnings per share as if Coca-Cola had accounted for its investment in CCE as securities available-for-sale and CCE had declared $116 million dividends.
Coca-Cola "Significant Influence" CCE Declares $116 Dividends [actual] Coca-Cola's reported income: 2007 $5,981 Less: Equity income in CCE -$249 Plus: CCE dividends $41 Coca-Cola's adjusted SFAS net income:2007 $5,773
Average common shares outstanding: 2007 2,313 Basic earnings per share $2.50
EPS difference: pro forma / $2.59 as reported -3.6%
3. Calculate Coca-Cola’s 2007 net income and earnings per share as if Coca-Cola had accounted for its investment in CCE as securities available-for-sale and CCE had declared $711 million dividends.
Coca-Cola "Significant Influence" CCE Declares $711 Dividends [net income Coca-Cola's reported income: 2007 $5,981 Less: Equity income in CCE -$249 Plus: CCE dividends $249 Coca-Cola's adjusted SFAS net income:2007 $5,981
Average common shares outstanding: 2007 2,313 Basic earnings per share $2.59
EPS difference: pro forma / $2.59 as reported 0.0%
4. Calculate Coca-Cola’s 2007 net income and earnings per share as if Coca-Cola had accounted for its investment in CCE as securities available-for-sale and CCE had declared $2,238 million dividends.
Coca-Cola "Significant Influence" CCE Declares $2,238 Dividends [net income + R/E] Coca-Cola's reported income: 2007 $5,981 Less: Equity income in CCE -$249 Plus: CCE dividends $783 Coca-Cola's adjusted SFAS net income:2007 $6,515
Average common shares outstanding: 2007 2,313 Basic earnings per share $2.82
EPS difference: pro forma / $2.59 as reported 8.8%