Question

FFB used cash from the bond sale to do one of the following. Possibility 1 - Purchase treasury stock on

June 2, 2014 in the amount of $1,000.And, also purchase on that date a 20% interest in a company that manufactures flour mixed with ground crickets (for additional protein) for $1,000.

Possibility 2 - Purchase a 40% interest in the flour company above for $2,000.

In both possibility 1 and 2, the investment is accounted for using the equity method.The earnings of the new flour company are $100 for the year ending May 31, 2015.No dividends were paid by this company

Deliverable #3

Assume that the FFB financial statements are the same as the General Mills financial statements.However, the economic events discussed above have not been recorded.Record the economic events.

What accounts did you debit?

What accounts did you credit?

Deliverable #4

Compute new ratios, after making the adjustments for the economic events.What are the new ratios for Flour, Food and Beyond (FFB)?

Current ratio

Debt to equity ratio

Intangible assets as a percent of total assets

Gross margin

Operating profit as a percent of sales

Return on Equity (beginning equity on June 1, 2014 was 5,392.7)