DC 9-1:

1.

Current Ratio (Kellogg):

For 2009- 1.12; For 2010- 0.91

Current ratio (General Mills):

For 2009- 0.98; For 2010- 0.923

All ratios other than Kellogg’s ratio for 2009 are less than 1.

This proves that the current liabilities > current assets.

Therefore; liquidity of both the companies are poor.

2.

2010
General Mills Kellogg's
Current Assets $3,480.0 $2,915.0
Current Liabilities $3,769.1 $3,184.0
Current Ratio 0.92 0.92

The current ratio of both companies is same and is <1 in terms of profitability.
Therefore; the present obligations exceed the current assets for both the companies. So, they may not meet
their existing obligations unless more funds are raised.

3.

If there is a lawsuit or other legal process filed against Kellogg's or General Mills, they will responsible for any
damages that result. But it does not affect their financial accounts as it is included in the Notes section of the
financial statement and not in the financial statements.

DC 9-3:

1.

The contingent liability must be disclosed in the notes. An accrual of the contingent liability should occur only if the
company is sure of the outcome. If accrual is made, the balance sheet changes as the liabilities increases in the
account of Contingent liabilities.

2.

Accrual is not needed since management is unable to estimate liability reasonably. Hence, it is acceptable to
disclose only the notes.
DC 10-2:

1.

GM Kellogg's
Total Liabilities $12,030.9 $9,693.0
Total Shareholder's
Equity $5,648.0 $2,154.0
Debt-to-Equity Ratio 2.13 4.50

The debt-to-equity ratio of both companies is very high. Kellogg's has a higher debt-to-equity ratio. Hence,
investors may find it risky to invest.

2.

For General Mills, the long-term debt and deferred income taxes have decreased but other liabilities have
increased.

For Kellogg, Long term debt and Deferred income taxes have increased but pension liability and other liabilities
have decreased. The increase of long-term debt and deferred income taxes will increase the cash flow as cash will
come in and vice versa.

3.

Issuances of long-term debt and net issuances of common stock are the primary source of cash for Kellogg. The
primary use of cash is in common stock repurchases and cash dividends.

Changes in notes payable, proceeds from common stock issued on exercised options and tax benefit on the same
are the primary source of cash for General Mills. The primary use of cash is payment of long-term debt, purchases
of common stock and dividends paid.

The long-term liability on the balance sheet indicates an increase in cash flow if more loans or notes are availed
and it decrease when the principal amounts of outstanding loans are paid off.

DC 11-1:

1.

Share of Common Stock

Authorized Issued Outstanding
Kellogg's 1,000,000,000 419,272,027 365,604,392
General Mill's 754.6M 656.5M
2.

For Kellogg's, Retained Earnings balance increased from $5481M to $6122M.

For General Mill's, Retained Earnings balance increased from $7235.6M to $8122.4M.

Net Income increases Retained Earnings balance and Dividends payout decreases Retained Earnings balance.

3.

Total Stockholder's equity for General Mill's = $5648M

Total Stockholder's equity for Kellogg's = $2154M

The numerical difference between the two companies does not indicate that one's shares are more valuable than
the other. Even though large corporation's shareholder equity is high, this does not always indicate that the
company's stock is more valuable.