Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Philip Morris International Inc. is a Swiss-American multinational cigarette and tobacco manufacturing company with products sold in over 180 countries. The most recognized and best

image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
Philip Morris International Inc. is a Swiss-American multinational cigarette and tobacco manufacturing company with products sold in over 180 countries. The most recognized and best selling product of the company is Marlboro. If you visit their website, it is interesting reading their section entitled "Our transformation." In it they say "PMI will be far more than a cigarette company We want to change society and deliver a better, smoke-free future. To make our vision a reality we are transforming and staking our entire future on a line of smoke-free products," and "This is the biggest shift in the history of Philip Morris International. Our transformation has been many years in the making. and thanks to the imagination and perseverance of thousands of people at PMI, we have developed smoke-free products that are better alternatives to cigarettes." The 2020 10-K for Philip Morris International is on the Canvas site, in the Topic 5 folder. Please open the 10-K and access the financial statements (Statements of earnings (income statement, page 59). Balance Sheet (pages 61-62) and Statement of Stockholders (Deficit) Equity (page 65)). In this transaction analysis, record the hypothetical transactions and adjustments described below directly into the financial statements. Start by entering the December 31, 2020 numbers into the financial statements. Then record the transactions and adjustments, using a column to record cach, to the right of the 2020 numbers. As transactions are recorded, be sure the financial statements are updated properly, linking from the income statement to the statement of retained earnings, and then statement of retained camnings to the balance sheet, as shown in the online talks. Please be sure to format your work following my guidelines Here are some items that should be pointed out. Philip Morris refers to retained earnings as "Earnings Reinvested in the Business." - Philip Morris stockholders' equity is in a deficit situation, it is negative, which is relatively rate On the balance sheet, Philip Morris shows accumulated depreciation as a positive number, then subtracts that from the total of the 4 categories of Property, plant and equipment. Accumulated depreciation is most often shown as a negative number when it is shown on balance sheets. The balance sheet is quite large, taking two pages. On this excel workshect, I put everything on one page, and I suggest keeping the orientation as portrait rather than landscape, and as with all financial statements be sure it fits to one page. You can either portrait or landscape the income statement, which ever you feel looks best. There are relatively few accounts on the Statement of Earnings. The accounting records of Philip Morris consist of hundreds of accounts, and they combine these accounts into the categories shown on the financial statements. When recording transactions, simply use your judgement in deciding where to record revenues and expenses, there will not be a perfect fit. For example, for transaction 5 I recorded the gain on sale in "Revenues including excise taxes" simply because I couldn't find anywhere better to record it! Transactions begin on the next page Let's get depreciation out of the way first. Please assume that straight-line depreciation is used for buildings and building equipment, and double declining balance depreciation is used for Machinery and equipment Construction in progress is not depreciated (it represents construction projects that are not yet finished), land is not depreciated and let's assume that depreciation has already been recorded on land improvements (shrubbery, parking lots, etc.). Furthermore please assume that Buidings and building equipment is given a 20-year useful life with 5880 salvage value and has $3,000 accumulated depreciation. Please assume that Machinery and equipment is given a 9-year useful life, has $5,000 accumulated depreciation and a $200 salvage Tout and mod depreciation for these items Clearly show All Bullding equipment, and double declining balance depreciation is used for Machinery and equipment. Construction in progress is not depreciated (it represents construction projects that are not yet finished), land is not depreciated and let's assume that depreciation has already been recorded on land improvements (shrubbery, parking lots, etc.). Furthermore please assume that Buidings and building equipment is given a 20-year useful life with $880 salvage value and has $3,000 accumulated depreciation. Please assume that Machinery and equipment is given a 9-year useful life, has $5,000 accumulated depreciation and a $200 salvage value. Please compute and record depreciation for these items. Clearly show computations 2 Additional Machinery and equipment is purchased, with a cost of $1,100. Philip Morris also had these additional costs, paid in cash: freight S10, labor to calibrate the equipment S12, labor to install the equipment S7. Assume the equipment itself was financed with a long-term note (Long-term debt). 3 Philip Morris spent $18 cash renovating various buildings and facilities. These renovation costs significantly improved the facilities. 4 Philip Morris spent $12 cash repairing other facilities and buildings. These costs did not significantly improve the facilities, they were repairs which enabled the facilities to continue to be used. 5 Philip Morris sold some buildings. The buildings cost was $120 and they had 580 accumulated depreciation. The buildings were sold for $130, cash, 6 Philip Morris developed a new emblem for their package covers, and they successfully had this emblem trademarked. The cost of the trademark was $16, paid in cash 7 Philip Morris spent $86 cash on various legal and filing fees and was successful in becoming the only company legally allowed to sell smoking products in the state of Michigan for the next 5 years. This is a silly example and of course could never happen, but the point is to illustrate that if this did happen, it would be recorded as an intangible asset, because an an intangible asset is "a resource that is controlled by the entity as a result of past events (for example, purchase or self-creation) and from which future economic benefits inflows of cash or other assets) are expected" (International Accounting Standard #8, Intangible Assets). In this case, Philip Morris has the 5 year exclusive legal right to be the only seller of smoking products in Michigan, for which future economic benefits certainly do accrue. So, please record this as an intangible asset. 8 Philip Morris purchased a competing company for $98, cash. The fair market value of the net assets (assets and liabilities) acquired is: leaf tobacco inventories SII. land and land improvements 58, buildings SI5, machinery and equipment S22 long-term debt $6. Transactions 9 and 10 on next page. 9 Let's record a sale, and I think this is particularly interesting for Philip Morris. Do you see "Excise taxes on products" at the top of the Statement of Earnings? An excise tax is a tax that is imposed on various goods, services and activities" (IRS Tax Tip 2020-133). Transactions 9 and 10 on next page. 9 Let's record a sale, and I think this is particularly intreresting for Philip Morris. Do you see "Excise taxes on products" at the top of the Statement of Earnings? An excise tax is "a tax that is imposed on various goods, services and activities" (IRS Tax Tip 2020-133). Excise taxes are sort of an indirect tax, like sales taxes, in that they are passed on to the customer at the point of sale. But they differ from sales taxes in that sales taxes apply to virtually all goods while excise taxes only apply to certain specific goods, such as tobacco. In many instances, excise taxes are applied to products or services in order to curb consumer consumption for health or environmental reasons. Where does the money go? Excise taxes are often set aside to fund specific projects or initiatives. Perhaps these excise taxes at least in part are directed to cancer research? Now onto the transaction. Suppose Philip Morris has additional Revenues (which include excise taxes) of $7,000, and that the excise taxes are $4,300, that the cost of the products sold was $1,000, and that these revenues are on account. Here is how I believe Philip Morris will record this. Increase revenues $7,000, increase "Excise taxes on products" $4,300, increase Cost of sales by $1,000. On the balance sheet decrease Finished product inventories $1,000, and increase a liability for the excise taxes to be submitted to the government $4,300 (I recorded this in Income taxes and other liabilities), increase cash $7,000. 10 Philip Morris records additional amortization of other intangible assets, $2,600. Philip Morris International, Inc. Statement of Earnings Year Ended December 31, 2020 (S in millions) Revenue including excise taxes Excise taxes on products Net revenues Cost of sales Gross profit Marketing, administration and research costs Amortization of intangibles Operating income Interest expense Pension and other employee benefit costs Earnings before income taxes Provision for income taxes Equity investments and securities (income) loss, net Net earnings Net earnings attributable to noncontrolling interests Net earnings attributable to Philip Morris Philip Morris International, Inc. Statement of Earnings Reinvested in the Business Year Ended December 31, 2020 ($ in millions) Balance, December 31, 2019 Net earnings Dividends declared Balance, December 31, 2020 mons Assets Cash and cash equivalents Trade receivables (less allowances of $23) Other receivables (less allowances of $38) Inventories Leaf tobacco Other raw materials Finished product Other current assets Total current assets Property, plant and equipment at cost Land and land improvements Buildings and building equipment Machinery and equipment Construction in regress Les accumulated depreciation Goodwill Other intangible assets, net Equity investments Deferred income taxes Other assets Total Assets Liabilities Short-term borrowings Current portion of long-term debt Accounts payable Accrued liabilities Marketing and selling Taxes, except income taxes Employment costs Dividends payable Other Income taxes Total current liabilities Long-term deht Deferred income taxes Employment costs Income takes and other liabilities Total liabilities Stockholders' (Delicit) Equity Common stock Additional paid in capital Earnings reinvested in the business Accumulated other comprehensive losses Low cost of repurchased sock Total Philip Morris stockholders dicit Noncontrolling interests Total stockholders' delica Total liabilities and Stockholders' (Delicit) Philip Morris International Inc. is a Swiss-American multinational cigarette and tobacco manufacturing company with products sold in over 180 countries. The most recognized and best selling product of the company is Marlboro. If you visit their website, it is interesting reading their section entitled "Our transformation." In it they say "PMI will be far more than a cigarette company We want to change society and deliver a better, smoke-free future. To make our vision a reality we are transforming and staking our entire future on a line of smoke-free products," and "This is the biggest shift in the history of Philip Morris International. Our transformation has been many years in the making. and thanks to the imagination and perseverance of thousands of people at PMI, we have developed smoke-free products that are better alternatives to cigarettes." The 2020 10-K for Philip Morris International is on the Canvas site, in the Topic 5 folder. Please open the 10-K and access the financial statements (Statements of earnings (income statement, page 59). Balance Sheet (pages 61-62) and Statement of Stockholders (Deficit) Equity (page 65)). In this transaction analysis, record the hypothetical transactions and adjustments described below directly into the financial statements. Start by entering the December 31, 2020 numbers into the financial statements. Then record the transactions and adjustments, using a column to record cach, to the right of the 2020 numbers. As transactions are recorded, be sure the financial statements are updated properly, linking from the income statement to the statement of retained earnings, and then statement of retained camnings to the balance sheet, as shown in the online talks. Please be sure to format your work following my guidelines Here are some items that should be pointed out. Philip Morris refers to retained earnings as "Earnings Reinvested in the Business." - Philip Morris stockholders' equity is in a deficit situation, it is negative, which is relatively rate On the balance sheet, Philip Morris shows accumulated depreciation as a positive number, then subtracts that from the total of the 4 categories of Property, plant and equipment. Accumulated depreciation is most often shown as a negative number when it is shown on balance sheets. The balance sheet is quite large, taking two pages. On this excel workshect, I put everything on one page, and I suggest keeping the orientation as portrait rather than landscape, and as with all financial statements be sure it fits to one page. You can either portrait or landscape the income statement, which ever you feel looks best. There are relatively few accounts on the Statement of Earnings. The accounting records of Philip Morris consist of hundreds of accounts, and they combine these accounts into the categories shown on the financial statements. When recording transactions, simply use your judgement in deciding where to record revenues and expenses, there will not be a perfect fit. For example, for transaction 5 I recorded the gain on sale in "Revenues including excise taxes" simply because I couldn't find anywhere better to record it! Transactions begin on the next page Let's get depreciation out of the way first. Please assume that straight-line depreciation is used for buildings and building equipment, and double declining balance depreciation is used for Machinery and equipment Construction in progress is not depreciated (it represents construction projects that are not yet finished), land is not depreciated and let's assume that depreciation has already been recorded on land improvements (shrubbery, parking lots, etc.). Furthermore please assume that Buidings and building equipment is given a 20-year useful life with 5880 salvage value and has $3,000 accumulated depreciation. Please assume that Machinery and equipment is given a 9-year useful life, has $5,000 accumulated depreciation and a $200 salvage Tout and mod depreciation for these items Clearly show All Bullding equipment, and double declining balance depreciation is used for Machinery and equipment. Construction in progress is not depreciated (it represents construction projects that are not yet finished), land is not depreciated and let's assume that depreciation has already been recorded on land improvements (shrubbery, parking lots, etc.). Furthermore please assume that Buidings and building equipment is given a 20-year useful life with $880 salvage value and has $3,000 accumulated depreciation. Please assume that Machinery and equipment is given a 9-year useful life, has $5,000 accumulated depreciation and a $200 salvage value. Please compute and record depreciation for these items. Clearly show computations 2 Additional Machinery and equipment is purchased, with a cost of $1,100. Philip Morris also had these additional costs, paid in cash: freight S10, labor to calibrate the equipment S12, labor to install the equipment S7. Assume the equipment itself was financed with a long-term note (Long-term debt). 3 Philip Morris spent $18 cash renovating various buildings and facilities. These renovation costs significantly improved the facilities. 4 Philip Morris spent $12 cash repairing other facilities and buildings. These costs did not significantly improve the facilities, they were repairs which enabled the facilities to continue to be used. 5 Philip Morris sold some buildings. The buildings cost was $120 and they had 580 accumulated depreciation. The buildings were sold for $130, cash, 6 Philip Morris developed a new emblem for their package covers, and they successfully had this emblem trademarked. The cost of the trademark was $16, paid in cash 7 Philip Morris spent $86 cash on various legal and filing fees and was successful in becoming the only company legally allowed to sell smoking products in the state of Michigan for the next 5 years. This is a silly example and of course could never happen, but the point is to illustrate that if this did happen, it would be recorded as an intangible asset, because an an intangible asset is "a resource that is controlled by the entity as a result of past events (for example, purchase or self-creation) and from which future economic benefits inflows of cash or other assets) are expected" (International Accounting Standard #8, Intangible Assets). In this case, Philip Morris has the 5 year exclusive legal right to be the only seller of smoking products in Michigan, for which future economic benefits certainly do accrue. So, please record this as an intangible asset. 8 Philip Morris purchased a competing company for $98, cash. The fair market value of the net assets (assets and liabilities) acquired is: leaf tobacco inventories SII. land and land improvements 58, buildings SI5, machinery and equipment S22 long-term debt $6. Transactions 9 and 10 on next page. 9 Let's record a sale, and I think this is particularly interesting for Philip Morris. Do you see "Excise taxes on products" at the top of the Statement of Earnings? An excise tax is a tax that is imposed on various goods, services and activities" (IRS Tax Tip 2020-133). Transactions 9 and 10 on next page. 9 Let's record a sale, and I think this is particularly intreresting for Philip Morris. Do you see "Excise taxes on products" at the top of the Statement of Earnings? An excise tax is "a tax that is imposed on various goods, services and activities" (IRS Tax Tip 2020-133). Excise taxes are sort of an indirect tax, like sales taxes, in that they are passed on to the customer at the point of sale. But they differ from sales taxes in that sales taxes apply to virtually all goods while excise taxes only apply to certain specific goods, such as tobacco. In many instances, excise taxes are applied to products or services in order to curb consumer consumption for health or environmental reasons. Where does the money go? Excise taxes are often set aside to fund specific projects or initiatives. Perhaps these excise taxes at least in part are directed to cancer research? Now onto the transaction. Suppose Philip Morris has additional Revenues (which include excise taxes) of $7,000, and that the excise taxes are $4,300, that the cost of the products sold was $1,000, and that these revenues are on account. Here is how I believe Philip Morris will record this. Increase revenues $7,000, increase "Excise taxes on products" $4,300, increase Cost of sales by $1,000. On the balance sheet decrease Finished product inventories $1,000, and increase a liability for the excise taxes to be submitted to the government $4,300 (I recorded this in Income taxes and other liabilities), increase cash $7,000. 10 Philip Morris records additional amortization of other intangible assets, $2,600. Philip Morris International, Inc. Statement of Earnings Year Ended December 31, 2020 (S in millions) Revenue including excise taxes Excise taxes on products Net revenues Cost of sales Gross profit Marketing, administration and research costs Amortization of intangibles Operating income Interest expense Pension and other employee benefit costs Earnings before income taxes Provision for income taxes Equity investments and securities (income) loss, net Net earnings Net earnings attributable to noncontrolling interests Net earnings attributable to Philip Morris Philip Morris International, Inc. Statement of Earnings Reinvested in the Business Year Ended December 31, 2020 ($ in millions) Balance, December 31, 2019 Net earnings Dividends declared Balance, December 31, 2020 mons Assets Cash and cash equivalents Trade receivables (less allowances of $23) Other receivables (less allowances of $38) Inventories Leaf tobacco Other raw materials Finished product Other current assets Total current assets Property, plant and equipment at cost Land and land improvements Buildings and building equipment Machinery and equipment Construction in regress Les accumulated depreciation Goodwill Other intangible assets, net Equity investments Deferred income taxes Other assets Total Assets Liabilities Short-term borrowings Current portion of long-term debt Accounts payable Accrued liabilities Marketing and selling Taxes, except income taxes Employment costs Dividends payable Other Income taxes Total current liabilities Long-term deht Deferred income taxes Employment costs Income takes and other liabilities Total liabilities Stockholders' (Delicit) Equity Common stock Additional paid in capital Earnings reinvested in the business Accumulated other comprehensive losses Low cost of repurchased sock Total Philip Morris stockholders dicit Noncontrolling interests Total stockholders' delica Total liabilities and Stockholders' (Delicit)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Accounting questions

Question

=+What kind of question would you ask to encourage their response?

Answered: 1 week ago

Question

=+Does it keep the visitor reading?

Answered: 1 week ago