how are goodwill and indefinite lived intangibles handled for write offs 638775

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KELLOGG COMPANY AND SUBSIDIARIES* CONSOLIDATED BALANCE SHEET
(Millions, except share data)	2008	2007
Current assets
Cash and cash equivalents	$255	$524
Accounts receivable, net	1,143	1,011
Inventories	897	924
Other current assets	226	243
Total current assets	$2,521	$2,702
Property, net	2,933	2,990
Goodwill	3,637	3,515
Other intangibles, net	1,461	1,450
Other assets	394	740
Total assets	$10,946	$11,397
Current liabilities
Current maturities of long term debt	$1	$466
Notes payable	1,387	1,489
Accounts payable	1,135	1,081
Other current liabilities	1,029	1,008
Total current liabilities	$3,552	$4,044
Long term debt	4,068	3,270
Deferred income taxes	300	647
Pension liability	631	171
Other liabilities	947	739
Commitments and contingencies
Shareholders’ equity
Common stock, $.25 par value, 1,000,000,000 shares authorized Issued: 418,842,707 shares in 2008 and 418,669,193 shares in 2007	105	105
Capital in excess of par value	438	388
Retained earnings	4,836	4,217
Treasury stock at cost 36,981,580 shares in 2008 and 28,618,052 shares in 2007	1,790	1,357
Accumulated other comprehensive income (loss)	2,141	827
Total shareholders’ equity	$1,448	$2,526
Total liabilities and shareholders’ equity	$10,946	$11,397

Revenue Recognition and Measurement

The Company recognizes sales upon delivery of its products to customers net of applicable provisions for discounts, returns, allowances, and various government withholding taxes. Methodologies for determining these provisions are dependent on local customer pricing and promotional practices, which range from contractually fixed percentage price reductions to reimbursement based on actual occurrence or performance. Where applicable, future reimbursements are estimated based on a combination of historical patterns and future expectations regarding specific in market product performance. The Company classifies promotional payments to its customers, the cost of consumer coupons, and other cash redemption offers in net sales. The cost of promotional package inserts is recorded in cost of goods sold. Other types of consumer promotional expenditures are normally recorded in selling, general and administrative (SGA) expense. Advertising The costs of advertising are expensed as incurred and are classified within SGA expense. Research and Development The costs of research and development (R&D) are expensed as incurred and are classified within SGA expense. R&D includes expenditures for new product and process innovation, as well as significant technological improvements to existing products and processes. Total annual expenditures for R&D are disclosed in Note 18 and are principally comprised of internal salaries, wages, consulting, and supplies attributable to time spent on R&D activities. Other costs include depreciation and maintenance of research facilities and equipment, including assets at manufacturing locations that are temporarily engaged in pilot plant activities.

Required

a. 1. The statement is entitled ‘‘Consolidated Balance Sheets.’’ What does it mean to have a consolidate balance sheet?

2. For subsidiaries where control is present, does Kellogg have 100% ownership? Explain.

3. Are there subsidiaries where control is not present? Explain.

b. 1. With this information, can the gross receivables be determined? Explain.

2. What is the estimated amount that will be collected on receivables outstanding at the end of 2008?

c. 1. What is the total amount of inventory at the end of 2008?

2. What indicates that the inventory is stated on a conservative basis?

3. What is the trend in inventory balance? Comment.

d. 1. What is the net property and equipment at the end of 2008?

2. What depreciation method is used for financial reporting purposes? Where permitted, what depreciation methods are used for tax reporting? Comment on why the difference in depreciation methods for financial reporting versus tax reporting.

3. What is the accumulated depreciation on land at the end of 2008?

e. 1. Describe the treasury stock account.

2. What method is used to record treasury stock?

3. Why is treasury stock presented as a reduction in stockholders’ equity?

f. 1. What is the fiscal year?

2. Comment on the difference in length of fiscal year.

g. 1. Comment on the use of estimates.

h. 1. Does it appear that cash and cash equivalents are presented conservatively?

i. 1. Comment on the source of goodwill.

2. How are goodwill and indefinite lived intangibles handled for write offs?