Case Questions for

General Mills Inc. - Understand Financial Report

ACG 6026 - Accounting Concepts for Managers

Dr. Bei Dong

College of Business, University of South Florida

Objective: With this case, you will get an opportunity to become familiar with a set of financial statements including auditors' opinion, accounting policy footnotes, perform some basic analysis, and recognize the role of managers' subjective estimation in preparing financial statements. It is important to think of the business behind the numbers, i.e., consider qualitative information about the business, its strategy, and operational performance in interpreting ratios.

General Mills, Inc. was incorporated in Delaware in 1928, which is now a leading producer of packaged consumer foods. The company has three segments: U.S. retail (i.e., grocery stores, mass merchandisers, club stores, specialty stores and drug, dollar and discount chains operating throughout the United States), international (i.e., retail business in Canada, and retail and foodservice businesses in Europe, Latin America and the Asia/Pacific region), and bakeries and foodservice (i.e., products marketed throughout the United States and Canada to retail and wholesale bakeries, commercial and noncommercial foodservice distributors and operators, restaurants, and convenience stores). (Source: Company 2006 Form 10-K or Annual Report)

Refer to the General Mills 2006 Annual Report (ended on May 28, 2006), please answer the following questions.

1)What financial statements are required to be prepared for external reporting purposes? What are the exact title did General Mills give these statements? Why does the word "consolidated" mean here? (2 points)

2)Who were General Mills' external auditors? What type of auditor's opinion was received by General Mills? What caution do we need to put on auditors' opinion? (3 points)

3)Refer to General Mills' balance sheet of 2006 (4 points; 1 point per question)-

a.Show that Assets=Liabilities + Equity

b.What were the company's major assets? Does this seem appropriate for companies like General Mills? Calculate the proportion of current and noncurrent assets for 2006.

c.Generally speaking, what are intangibles? What's goodwill? How's goodwill generated? What other intangible assets might the company have?

d.How did the company get finance from outside? What's the major way?

4)Refer to General Mills' 2006 Statement of Earnings (3 points; 1 point per question)-

a.How did the company recognize revenue? Is it consistent with revenue recognition principle?

b.Why did the company separately list Restructuring and other exit costs, Divestitures, and Debt repurchase costs? Why didn't the company combine those costs with Selling, general and administrative expenses?

c.What were the major expenses of the company? Where was the shipping expenses (i.e., expenses occurring during selling) included?

5)Refer to General Mills' 2006 Statement of Cash Flows (1 point).

a.Which section of the statement of cash flows reflects the lifeblood of the company? How much cash did the company use for purchase land, building and equipment? How much dividend did the company pay?

6)The company used "estimates" when recognizing some items on its financial statements. List those balance sheet accounts (at least two accounts) whose recognition needs managers' estimates. (2 points)