DD Restawrans, fhe, wax incerparated is Rourida in 1995 but its parent conteans. GMPR bvein in 1968 as Red Labiter lnas of Awerica. New DD Restaurant is me largest publich hefld casual 1.397 reasuranes in obe Chitod States and Canada. The company operates the following Seavant 5., Rownce: Compant Form {0N Learning Cybjectives - Determine how cconomic evenis affect a company"s financial stalements - Record cconomic events and prepare a simple set of financial Masensents. - Understand how to adjust financial statements for accruals and reclassification. In this case you will record basic transactions to recreate the May 27, 2017, balance sheet and income statement for DD Restaumats, Inc. The company's financial statement formats are ineluded. You can wee them to guide yoear work. Note: All dollar figures are in miltions. To complete this case you necd to develop computerined specadsheel. The strocfare of the spreadsheet follows after the cave questions. Because of space constraints, the spreadsheet is reproduced on sequential pages here. However, yod should create one worksheet with all the accounts across the top. Use the nambers from DD A Actual financial statensents to enter the opening fie., May 28, 2016) and endiag (i.e. May 27, 2017) Batance Sheets and \$ratements of Earnings balances into the accounts on your spreadsheet. Create two separate accounts for "Land, building and equiginent, "one for the original cost of these assets (2016:$4,228,5 and 2017:$3,961,4) and a second account for the related accumalated depecciation (2016:51,782.5 and 2017: 51.777). Show this second account as a negative ansount (becaise it is a contra-asset account) se that the sum of the two accounts combincd equals the "Land, beilding and equipencnt, net " amount on the balance sheet (2016;$2.446.0 and 2017:52,184,4). Some smaller balance sheet acceunts have been combined in the spreadshect. The Starement of Earnings aceounts should have opening balances of 50 . The row labefed "Unadjusted trial balance" sherld be defined so that cach cell equals the vum of the opening balance asd the transactions in that column. The row labeled Pre-clesing balances" should be defined so that each cell equals the sum of the "Linadjusted trial balance" and the adjustments and reclassifications in that column. The last row (i.e., May 27, 2017, Actual Halance Sheets and Statements of Larnings) serves as a chock that your year-end balances are correct. You can define another fow that calculates the difference betweea the actual year-end balances and your calculated balances. A necessary (but not sufficien) condition for a cotrect spreadsheet is that the value in each cell of the "difference" row is equal to zero. Some transactions will affect enly the balance shoct (e.g. transactien 16. some will affect both the balance sheet and the iscome statement (e.g. trancaction 92 ). Indicate increases in each account as positive numbers and decreases in each accosist as negative numbers. Use the "Retained Earnings" account asly for the dividend entry (a23) and the closing entry. Record the transactions and adjustments that affect Statement of Earnings accounts directly to the appropriate revenue and expense accounts. You will close these temporary accounts to "Retained Eiarnings" in part g of the case. Concepts a. Priot to examining DD's balance sheet, think aboun what a restaurant chain does. What accousis do you expect to see on the balance sheet? Which are the major assets? Liabilities? Process b. Record each of the following traneactions for the year ended May 27, 2017, in the spreadsheet. All figures are in millions of dollars. 1. The company parchased $1,754,4 of food and beverage inventery on aceount. 2. The company had 55,816.5 in sales to customers. Of this, $149.3 was on account. 3. The cost of the food and beverage sold ( N2 above) was 51,663.4. 4. The company paid cash for restaurant employees' wages and other labor expenses totaling $1,875,6, 5. The company paid cash for restaurant expenses totaling $888. 6. The company sold gift cards for which it collected $117.6 in cash. The cards expire in one year. The company does not recognize this as revenue until customers actually use (redecm) the cards, 7. The company paid cash for selling. general and administrative expenses totaling 5473.8. 8. The company collected $140 of accounts receivahle. 9. The company paid cash of $3.45.2 to purchase new equipment and cash of $2.2 to acquire other long-term assets. 10. DD Restaurants" management signed a new labor agrecment with its cmployecs. The two-year agreement takes eftect on July 1, 2017, and calls for total wage and benefit increases of $120 per year. 11. DD Restaurants disposed of equmenest that had a net book value of S61 for cash proceeds of $57,9. The difference is considered an operating loss on the statement of earnings and is included in "Selling, general and administrative expense. The equipment had an original cost or $110. 12. The company paid $1,752.5 to settle accounts payable. 13. During the year, the eompany paid bondtholders $40.1 of interest. 14. Customers redeemed gift cards totaling $108.5. 15. On May 15, 2017. DD paid $33.5 for casealty and property insurance policies. Coverage on these one-year policies begins Jane 1, 2017. 16. The company paid $59.5 to employees for wages and benefts relating to the prior-year. Of this, $56 related to accrued payroll and $3.5 to accrued payrolt taxes. 17. The company received $167.4 when it borrowed short-term debt. 18. The company repurchased its own siock for $371.2cash. Hint: Treasury slock is a contra-cquity account, which is why it is bracketed on the balance shect. Purchasing mare treasury steck makes the negative balance grow more negative (that is, larger in absolute terms). 19. The company granted stock options to certain key executives. These options had a fair value of $31.6 and DD recorded this as an expense ("Selting, general and administrative") and increased the common stock account by that amount. Cash was too affected. 20. During the year executives exercised previously-granted stock options. DD collected cash of 595.9 from the execatives and reccived a tax refund frem the government. These transactions affected a number of accoents. These transactions bave alteady been entered into the spreadsheet in aggregate. 21. The company repaid long-term debt amoanting to \$I53. Hint. Part of this debt was classified as current portion of long-term debt on the May 28, 2016, balance shect. 22. The company recorded income taxes expense of $153.7 which involved cash of $197.8 and other tax-related asset and lability accounts. This transection has already bece entered into the spreadsheet 23. The company declared and paid $65.7 of dividends. 24. During the year, DD Restaurants closed one Red Lobster location and one Otive Garden bocation. No cash was itvolved it these closares but the eompany recerded an inspairment charge of $2.4. These restaurant pregerties had an original cost of 59.2 and accumulated depreciation of $6.8 at the time DD closcul them. c. Prepare an unadjusted trial balance from the spreaduhect. Hint: the unadjusted balance for Retained Earnings is $1,619. d. Record in the spreadsheet, the following adjustments and reclassifications. 25. By the middle of May 2017, DD Fiestaurants had decided to close certain underperforming rostaurants. Even though these testaurants have net yet been closed, DD mast record the trancactions in the current year. This aceessitated three adjusteneats, as follows: a) DD must write down certain assets at the restaurants that will be closed such that the May 27, 2017, balance sheet reports the assets" (lower) fair value. To record this writedown, DD must reduce asset acceunts by the follewing amounts: In addition, DD must accrue anticipated payroll-related severance costs of $12.5, which will be paid next year. The combined asset write-dewn and payroll accnal resalt in a toeal charge of \$266.6. which DD ischades in an aceeunt labelest, Lass from discentinued operations." b) During the yeat, the discoetinued restaurants penctate profit of 590.9. However, DD must reclassify this profit as discontinoed for financial statement presentation purposes. On the income statement, DD inclades this profit in, "Loss from discontinued operations." Before any adjustments, the sales and expenses are recorded in the following accousts: c) For halance theet presentation parposes, eertain remaining assets and liabilities must be reclassified as discontinued assets and liabilatiek, respectively. DD labels these discontinued accounts a6, "Assets held foe sale" and " iabelities associated with assets held for sale". Before any adjustments, these assets and liabilities afe incleded in the following accounts: 26. The last payday fot the company was May 22, 2017. Rextaurant cmpleyees had camed, but the company had not yet paid, $28.8 of additional wages through May 27,2017. DD senior executives earned performance bonuses of 542.1, which the company will not pay until after 20zo. DD included the evecutives' compensation in Selling, general and administrative expense. 27. On May 15. 2016, DD gaid the casualty and peoperty insurance pecmisen of 329.9 and recorded the amount as a prepaid expense (a current asset). Coverage on these one-year policies begas June 1, 2016. Adjua for thes expired invurance premium at May 27, 2017 by recerding the insurance expense in -Selling. general and administrative" expense. 28. Depreciation and amertizatien expesse was 5200.4 for the fiseal year. Of thes, 5196,1 pertained to buildings and equipment and $43 rclated to amoetization of ccrtain intangible assets, which DD includes with TOther assets." 29. A review of the compaay's reconds revealed that $11.4 of peeviously deferred (uncarned) rent had been darned during the year. DD includes reat revenue as a reduction to "Selling. general and administrative expenve." 30. On May 27, 2017, DD Restaurant employees took a pliysical count of inventory. The cost of food and beverages at all continuing locations en that date was 5209.6, 31. In May 2017, a consulting firm hired by DD Restaurants issued a report stating that the "Olive Gardea brand name is worth $360. e. Construct a statement of earnings for the year ended May 27, 2017. Use the heading from your spreadshect columns as the account titles. f. Close alt the temporary accounts oe the statement of earnings to fetained caenings. 7. Prepare the May 27, 2017, balance sheet. Use the headings from your specadaheet coluames as the account titles. h. For each of the transactions that involve eash, indicate whether the transaction woeld appear in the "eperating." "investing," of "financing" section of the statement of cask flows. requirement a BS_1_blank BS_2_blank BS_3_blank IS_blank requirement e requirement 9 requirement a BS_1_blank BS_2_blank BS_3_blank _ B_blank requiremente requirement g 7.Coat of food beverate 4. Pay restaurant wages 5. Pay restaurant copenses h.sell gifi cards 7 Pay SCMeA expenses 8 Collect accesants receivadele D. Rurchase cquipment 8 other 0.5ien laber ayrecexeni 1. Thopose ef cyuipment 12.5ettle acceratite payable 13.Pay imerest cepenw 4. Rovlecm gift cands 5. Pay invirance premium 16. Henle accrued liabilities 1. Horrow stortilerm deter 10. Ropurchas stoch 9.Cition thock eqeions 90. Rotcutines exettive options 21. Repay latd-tem debt 22. Devord tak expense 21. Pay disidends 24. Close teo retasant Hadjusted trial halasee Vjastancats: 25. A Recond discomtinied ope 15. b. Iteclasefy tevenue expenses 25.e-Reclassify assetuliabilities 26. Acenue wages and bonuses 27. Adjest pecpaid expense 28. Resord depecciation expeme 29. Recoghite ent revetue 10. Adjest imsobtey 11. Olive Garden beraul nanse Pre-clawing balances Thasing entry Balance May 27,2017 17x 211.4los5 11.1 \begin{tabular}{|l|l|l|l|l|l|l} requirement a BS_1_blank & BS_2_blank & BS_3_blank & IS_blank requirement e & requirement g \end{tabular} req E Consolidated Balance Shects Total current assets Land,buildings and equipenents, at cost Accumulated depreciation-Land,buildings and equipments Other assets \begin{tabular}{|l|l|l|l|} \hline Total awsets & & & \\ \hline Liabilities and Steckholders' Equity & & & \\ \hline \end{tabular} Current liabitibes: Accounts peyable Short-kerm debt Accrucd payroll Accrued income taxes Oiber acerued taxes Unearned revemes Currest portion of lont-tern debs Oher curren liabilities DD Restawrans, fhe, wax incerparated is Rourida in 1995 but its parent conteans. GMPR bvein in 1968 as Red Labiter lnas of Awerica. New DD Restaurant is me largest publich hefld casual 1.397 reasuranes in obe Chitod States and Canada. The company operates the following Seavant 5., Rownce: Compant Form {0N Learning Cybjectives - Determine how cconomic evenis affect a company"s financial stalements - Record cconomic events and prepare a simple set of financial Masensents. - Understand how to adjust financial statements for accruals and reclassification. In this case you will record basic transactions to recreate the May 27, 2017, balance sheet and income statement for DD Restaumats, Inc. The company's financial statement formats are ineluded. You can wee them to guide yoear work. Note: All dollar figures are in miltions. To complete this case you necd to develop computerined specadsheel. The strocfare of the spreadsheet follows after the cave questions. Because of space constraints, the spreadsheet is reproduced on sequential pages here. However, yod should create one worksheet with all the accounts across the top. Use the nambers from DD A Actual financial statensents to enter the opening fie., May 28, 2016) and endiag (i.e. May 27, 2017) Batance Sheets and \$ratements of Earnings balances into the accounts on your spreadsheet. Create two separate accounts for "Land, building and equiginent, "one for the original cost of these assets (2016:$4,228,5 and 2017:$3,961,4) and a second account for the related accumalated depecciation (2016:51,782.5 and 2017: 51.777). Show this second account as a negative ansount (becaise it is a contra-asset account) se that the sum of the two accounts combincd equals the "Land, beilding and equipencnt, net " amount on the balance sheet (2016;$2.446.0 and 2017:52,184,4). Some smaller balance sheet acceunts have been combined in the spreadshect. The Starement of Earnings aceounts should have opening balances of 50 . The row labefed "Unadjusted trial balance" sherld be defined so that cach cell equals the vum of the opening balance asd the transactions in that column. The row labeled Pre-clesing balances" should be defined so that each cell equals the sum of the "Linadjusted trial balance" and the adjustments and reclassifications in that column. The last row (i.e., May 27, 2017, Actual Halance Sheets and Statements of Larnings) serves as a chock that your year-end balances are correct. You can define another fow that calculates the difference betweea the actual year-end balances and your calculated balances. A necessary (but not sufficien) condition for a cotrect spreadsheet is that the value in each cell of the "difference" row is equal to zero. Some transactions will affect enly the balance shoct (e.g. transactien 16. some will affect both the balance sheet and the iscome statement (e.g. trancaction 92 ). Indicate increases in each account as positive numbers and decreases in each accosist as negative numbers. Use the "Retained Earnings" account asly for the dividend entry (a23) and the closing entry. Record the transactions and adjustments that affect Statement of Earnings accounts directly to the appropriate revenue and expense accounts. You will close these temporary accounts to "Retained Eiarnings" in part g of the case. Concepts a. Priot to examining DD's balance sheet, think aboun what a restaurant chain does. What accousis do you expect to see on the balance sheet? Which are the major assets? Liabilities? Process b. Record each of the following traneactions for the year ended May 27, 2017, in the spreadsheet. All figures are in millions of dollars. 1. The company parchased $1,754,4 of food and beverage inventery on aceount. 2. The company had 55,816.5 in sales to customers. Of this, $149.3 was on account. 3. The cost of the food and beverage sold ( N2 above) was 51,663.4. 4. The company paid cash for restaurant employees' wages and other labor expenses totaling $1,875,6, 5. The company paid cash for restaurant expenses totaling $888. 6. The company sold gift cards for which it collected $117.6 in cash. The cards expire in one year. The company does not recognize this as revenue until customers actually use (redecm) the cards, 7. The company paid cash for selling. general and administrative expenses totaling 5473.8. 8. The company collected $140 of accounts receivahle. 9. The company paid cash of $3.45.2 to purchase new equipment and cash of $2.2 to acquire other long-term assets. 10. DD Restaurants" management signed a new labor agrecment with its cmployecs. The two-year agreement takes eftect on July 1, 2017, and calls for total wage and benefit increases of $120 per year. 11. DD Restaurants disposed of equmenest that had a net book value of S61 for cash proceeds of $57,9. The difference is considered an operating loss on the statement of earnings and is included in "Selling, general and administrative expense. The equipment had an original cost or $110. 12. The company paid $1,752.5 to settle accounts payable. 13. During the year, the eompany paid bondtholders $40.1 of interest. 14. Customers redeemed gift cards totaling $108.5. 15. On May 15, 2017. DD paid $33.5 for casealty and property insurance policies. Coverage on these one-year policies begins Jane 1, 2017. 16. The company paid $59.5 to employees for wages and benefts relating to the prior-year. Of this, $56 related to accrued payroll and $3.5 to accrued payrolt taxes. 17. The company received $167.4 when it borrowed short-term debt. 18. The company repurchased its own siock for $371.2cash. Hint: Treasury slock is a contra-cquity account, which is why it is bracketed on the balance shect. Purchasing mare treasury steck makes the negative balance grow more negative (that is, larger in absolute terms). 19. The company granted stock options to certain key executives. These options had a fair value of $31.6 and DD recorded this as an expense ("Selting, general and administrative") and increased the common stock account by that amount. Cash was too affected. 20. During the year executives exercised previously-granted stock options. DD collected cash of 595.9 from the execatives and reccived a tax refund frem the government. These transactions affected a number of accoents. These transactions bave alteady been entered into the spreadsheet in aggregate. 21. The company repaid long-term debt amoanting to \$I53. Hint. Part of this debt was classified as current portion of long-term debt on the May 28, 2016, balance shect. 22. The company recorded income taxes expense of $153.7 which involved cash of $197.8 and other tax-related asset and lability accounts. This transection has already bece entered into the spreadsheet 23. The company declared and paid $65.7 of dividends. 24. During the year, DD Restaurants closed one Red Lobster location and one Otive Garden bocation. No cash was itvolved it these closares but the eompany recerded an inspairment charge of $2.4. These restaurant pregerties had an original cost of 59.2 and accumulated depreciation of $6.8 at the time DD closcul them. c. Prepare an unadjusted trial balance from the spreaduhect. Hint: the unadjusted balance for Retained Earnings is $1,619. d. Record in the spreadsheet, the following adjustments and reclassifications. 25. By the middle of May 2017, DD Fiestaurants had decided to close certain underperforming rostaurants. Even though these testaurants have net yet been closed, DD mast record the trancactions in the current year. This aceessitated three adjusteneats, as follows: a) DD must write down certain assets at the restaurants that will be closed such that the May 27, 2017, balance sheet reports the assets" (lower) fair value. To record this writedown, DD must reduce asset acceunts by the follewing amounts: In addition, DD must accrue anticipated payroll-related severance costs of $12.5, which will be paid next year. The combined asset write-dewn and payroll accnal resalt in a toeal charge of \$266.6. which DD ischades in an aceeunt labelest, Lass from discentinued operations." b) During the yeat, the discoetinued restaurants penctate profit of 590.9. However, DD must reclassify this profit as discontinoed for financial statement presentation purposes. On the income statement, DD inclades this profit in, "Loss from discontinued operations." Before any adjustments, the sales and expenses are recorded in the following accousts: c) For halance theet presentation parposes, eertain remaining assets and liabilities must be reclassified as discontinued assets and liabilatiek, respectively. DD labels these discontinued accounts a6, "Assets held foe sale" and " iabelities associated with assets held for sale". Before any adjustments, these assets and liabilities afe incleded in the following accounts: 26. The last payday fot the company was May 22, 2017. Rextaurant cmpleyees had camed, but the company had not yet paid, $28.8 of additional wages through May 27,2017. DD senior executives earned performance bonuses of 542.1, which the company will not pay until after 20zo. DD included the evecutives' compensation in Selling, general and administrative expense. 27. On May 15. 2016, DD gaid the casualty and peoperty insurance pecmisen of 329.9 and recorded the amount as a prepaid expense (a current asset). Coverage on these one-year policies begas June 1, 2016. Adjua for thes expired invurance premium at May 27, 2017 by recerding the insurance expense in -Selling. general and administrative" expense. 28. Depreciation and amertizatien expesse was 5200.4 for the fiseal year. Of thes, 5196,1 pertained to buildings and equipment and $43 rclated to amoetization of ccrtain intangible assets, which DD includes with TOther assets." 29. A review of the compaay's reconds revealed that $11.4 of peeviously deferred (uncarned) rent had been darned during the year. DD includes reat revenue as a reduction to "Selling. general and administrative expenve." 30. On May 27, 2017, DD Restaurant employees took a pliysical count of inventory. The cost of food and beverages at all continuing locations en that date was 5209.6, 31. In May 2017, a consulting firm hired by DD Restaurants issued a report stating that the "Olive Gardea brand name is worth $360. e. Construct a statement of earnings for the year ended May 27, 2017. Use the heading from your spreadshect columns as the account titles. f. Close alt the temporary accounts oe the statement of earnings to fetained caenings. 7. Prepare the May 27, 2017, balance sheet. Use the headings from your specadaheet coluames as the account titles. h. For each of the transactions that involve eash, indicate whether the transaction woeld appear in the "eperating." "investing," of "financing" section of the statement of cask flows. requirement a BS_1_blank BS_2_blank BS_3_blank IS_blank requirement e requirement 9 requirement a BS_1_blank BS_2_blank BS_3_blank _ B_blank requiremente requirement g 7.Coat of food beverate 4. Pay restaurant wages 5. Pay restaurant copenses h.sell gifi cards 7 Pay SCMeA expenses 8 Collect accesants receivadele D. Rurchase cquipment 8 other 0.5ien laber ayrecexeni 1. Thopose ef cyuipment 12.5ettle acceratite payable 13.Pay imerest cepenw 4. Rovlecm gift cands 5. Pay invirance premium 16. Henle accrued liabilities 1. Horrow stortilerm deter 10. Ropurchas stoch 9.Cition thock eqeions 90. Rotcutines exettive options 21. Repay latd-tem debt 22. Devord tak expense 21. Pay disidends 24. Close teo retasant Hadjusted trial halasee Vjastancats: 25. A Recond discomtinied ope 15. b. Iteclasefy tevenue expenses 25.e-Reclassify assetuliabilities 26. Acenue wages and bonuses 27. Adjest pecpaid expense 28. Resord depecciation expeme 29. Recoghite ent revetue 10. Adjest imsobtey 11. Olive Garden beraul nanse Pre-clawing balances Thasing entry Balance May 27,2017 17x 211.4los5 11.1 \begin{tabular}{|l|l|l|l|l|l|l} requirement a BS_1_blank & BS_2_blank & BS_3_blank & IS_blank requirement e & requirement g \end{tabular} req E Consolidated Balance Shects Total current assets Land,buildings and equipenents, at cost Accumulated depreciation-Land,buildings and equipments Other assets \begin{tabular}{|l|l|l|l|} \hline Total awsets & & & \\ \hline Liabilities and Steckholders' Equity & & & \\ \hline \end{tabular} Current liabitibes: Accounts peyable Short-kerm debt Accrucd payroll Accrued income taxes Oiber acerued taxes Unearned revemes Currest portion of lont-tern debs Oher curren liabilities