Question

THE WENDY'S COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands) December 30, 2012 January 1 2012 ASSETS Current assets Cash and cash equivalents . . . . . . . . . . . . . … Accounts and notes receivable . . . . .. . . . . . . . .. . . . . . . Inventories . Prepaid expenses and other current assets .. . . . . . . . .. Deferred income tax benefit . _ . _ . . . . . . . . . . . . . . . .. . . .. - 13.805 24,231 91、489 65,777 68,349 12,903 27,397 80,970 70,547 709,827 735,397 876,201 870,431 Investments 113,283 119,271 . . 52,013 67,542 Deferred costs and other assets Total assets .. LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities $ 12,9116,597 70,826 Accounts payable .. Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . .. . . .. Advertising funds restricted liabilities . . . . .. . .. .. . . . .. . . .. . 81,301 178,298 70,547 . . . 137,348 65,777 286,862 336,743 Long-term debt Deferred income taxes . 438,217458,1017 147,614 . . . 147,808 Commitments and contingencies Stockholders' equity: Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares 47,042 47,042 issued Additional paid-in capital Common stock held in treasury, at cost Accumulated other comprehensive income .. . . 2.361 .. . . . . . . . . . . . . . . . . . . . . . . . . . .. $4,303,199 $4,289,129 Total liabilities and stockholders' equity

3. Using information in Note 8, compare the amount recorded for Wendy’s investment in TimWen at December 30, 2012 with Wendy’s 50% share of TimeWen’s equity at December 30, 2012. What accounts for the difference between these two amounts? Show calculations to reconcile the two figures.

4. Consider the information disclosed in Note 8 regarding Wendy’s investment in the TimWen Joint Venture.

a. How did Wendy’s equity method investment in TimWen affect their earnings before taxes in 2012 and 2011? Where does this appear in Wendy’s consolidated statements of operations?

b. Prepare the journal entry to record Wendy’s share of TimWen’s 2012 earnings.

c. What is the amount of amortization of the purchase price adjustments in 2012? Prepare the journal entry to record the amortization for the purchase price adjustments for 2012.

d. What amount of dividends did Wendy's receive from the TimWen joint venture in 2012 and 2011? Prepare the journal entry to record the receipt of dividends from TimWen for 2012.

5. Consider the information in the statement of cash flows.

a. The operating activities section of the statement of cash flows reports a negative adjustment for “Equity in earnings in joint ventures, net” of $8,724 in 2012. Reconcile this amount to the information disclosed in Note 8. Explain why a negative adjustment is made to arrive at net cash from operating activities.

b. The operating section also reports a positive adjustment for “Distributions received from joint venture” of $15,274 in 2012. Reconcile this amount to the information disclosed in Note 8. Explain why a positive adjustment is made to arrive at net cash from operating activities.

Answer 1

As per the HOMEWORKLIB POLICY, first four questions will be answered.

Answer:3

Wendy’s investment in TimWen at December 31, 2012 = $89,370

Wendy’s share of TimWen equity on December 31, 2012 = $35,282 (89370-54088) and it is 50% of partners’ equity.

Difference = $54,088.

This states that Wendy’s investment exceeded interest in underlying equity because of purchase price adjustments from the merger.

Part-4A)

In equity method of investment, Earnings are adjusted to amortization of acquisition price.

In 2012, earnings before taxes = $10,551 ($13,680 - $3,129 amortization).

In 2011, earnings before taxes = $10,571 ($13,505 - $2,934).

Wendy reports it in the consolidated statements of operations under the heading “other operating expenses”.

Part-4B)

Account titles and explanation	Debit	Credit
Investment in joint venture	13,680
Investment income		13,680

Part-4C)

Amortization amount = $3129

Account titles and explanation	Debit	Credit
Loss in Investment	3129
Investment in joint venture		3129

Part -4D)

Amount of dividend = $15274

Account titles and explanation	Debit	Credit
Cash	15274
Investment in joint venture		15274

Part-5A)

Reason for negative statement:

When the earnings were discovered, they were included in net income. Now in case of non-cash transaction, the amounts should be subtracted from the net income value (while preparing cash flow statement). So, this can be counted as:

Earnings before taxes of $10,551 – $1,827.

Part-5B)

Reason for positive statement: Dividends from cash

Initially, this income was not included in statement. The reason behind that was the income of the owner was not counted for the statement. This amount should be same as “Distribution received” (Note-8).