Assignment - Case Study Chipotle Mexican Grill, Inc.
This case is based on the Annual Report 2016 of the Chipotle Mexican Grill, Inc. (Chipotle). The goal of this case study is to relate students' acquired knowledge with the practice. To complete this case study, you must answer 30 multiple choice questions related to the Chipotle report.
Question 1 -
Statement 1: This report is for the Securities and Exchange Commission...therefore, Chipotle is a publicly traded company.
Statement 2: This report is an example of Managerial Accounting
a. Statement 1 is incorrect; statement 2 is correct
b. Statement 1 is correct; statement 2 is incorrect
c. Both statements are incorrect
d. Both statements are correct
Question 2 -
Statement 1: This report is an example of bookkeeping and accounting
Statement 2: This report is an example of accounting only.
a. Statement 1 is correct; statement 2 is incorrect
b. Both statements are incorrect
c. Both statements are correct
d. Statement 1 is incorrect; statement 2 is correct
Question 3 -
Statement 1: Chipotle is organized as a partnership
Statement 2: The external accountant of Chipotle is responsible for the financial statements of Chipotle
a. Statement 1 is correct; statement 2 is incorrect
b. Both statements are correct
c. Statement 1 is incorrect; statement 2 is correct
d. Both statements are incorrect
Question 4 -
Statement 1: Chipotle financial statements are in conformity with the U.S. generally accepted accounting principles
Statement 2: Chipotle recognizes revenue when payment is tendered at the point of sale. This is in conformity with the materiality principle.
a. Both statements are correct
b. Both statements are incorrect
c. Statement 1 is correct; statement 2 is incorrect
d. Statement 1 is incorrect; statement 2 is correct
Question 5 -
Statement 1: Chipotle financial statements are in line with the fundamental accounting equation.
Statement 2: Chipotle financial statements are in line with the full disclosure principle.
a. Both statements are correct
b. Both statements are incorrect
c. Statement 1 is incorrect; statement 2 is correct
d. Statement 1 is correct; statement 2 is incorrect
Question 6 -
Statement 1: "Leasehold improvements, property and equipment, net" in Chipotle's balance sheet is an example of a liability account.
Statement 2: "Accrued payroll and benefits" in Chipotle's balance sheet is an example of a liability account.
a. Statement 1 is correct; statement 2 is incorrect
b. Statement 1 is incorrect; statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
Question 7 -
Statement 1: "Accounts payable" in Chipotle's balance sheet is likely the result of an oral or implied promise to pay at some future day.
Statement 2: Chipotle's financial statement does not appear to have a mortgage account.
a. Statement 1 is correct; statement 2 is incorrect
b. Both statements are correct
c. Statement 1 is incorrect; statement 2 is correct
d. Both statements are incorrect
Question 8 -
Chipotle's "current assets" in its balance sheet consists of:
a.
- Cash and cash equivalents
- Inventory
- Prepaid expenses and other current assets
- Income tax receivable
- Investments
b.
- Cash and cash equivalents
- Accounts receivable
- Inventory
- Prepaid expenses and other current assets
- Income tax receivable
- Investments
c.
- Cash and cash equivalents
- Accounts receivable, net of allowance for doubtful accounts
- Inventory
- Prepaid expenses and other current assets
- Income tax receivable
d.
- Cash and cash equivalents
- Accounts receivable, net of allowance for doubtful accounts
- Inventory
- Prepaid expenses and other current assets
- Income tax receivable
- Investments
Question 9 -
Chipotle's "Total current liabilities" in its balance sheet consists of:
a.
- Accounts payable
- Accrued liabilities
- Prepaid expenses and other current assets
b.
- Accounts payable
- Accrued liabilities
c.
- Accounts payable
- Accrued liabilities
- Accrued payroll and benefits
d. None of these
Question 10 -
Statement 1: The capital stock in "Shareholders' equity" in Chipotle's balance sheet consists solely of common stock.
Statement 2: Chipotle's shareholders' common stock remained unchanged in 2016 compared to 2015.
a. Statement 1 is incorrect; statement 2 is correct
b. Statement 1 is correct; statement 2 is incorrect
c. Both statements are incorrect
d. Both statements are correct
Question 11 -
Statement 1: The financial statement of Chipotle shows a gain because of selling of assets in 2016.
Statement 2: Chipotle's earnings per share (EPS, basic or diluted) can be derived using the formula on page 151 in your book (Schmidgall & Damito, 2015).
a. Both statements are incorrect
b. Both statements are correct
c. Statement 1 is correct; statement 2 is incorrect
d. Statement 1 is incorrect; statement 2 is correct
Question 12 -
Statement 1: The business of Chipotle is to operate restaurants, which serve a focused menu.
Statement 2: The balance sheet of Chipotle reflects the financial position of this business form during a given period (for example 2016).
a. Statement 1 is correct; statement 2 is incorrect
b. Both statements are incorrect
c. Statement 1 is incorrect; statement 2 is correct
d. Both statements are correct
Question 13 -
Statement 1: The balance sheet of Chipotle is being presented in the account format.
Statement 2: The total of long-term assets of Chipotle is equal to $1,203,729 (x $1,000), according to its consolidated balance sheet.
a. Both statements are incorrect
b. Statement 1 is correct; statement 2 is incorrect
c. Statement 1 is incorrect; statement 2 is correct
d. Both statements are correct
Question 14 -
Statement 1: "Leasehold improvements, property and equipment, net" is part of Chipotle's non-current assets.
Statement 2: Chipotle's consolidated balance sheet has both short- and long-term investments.
a. Statement 1 is incorrect; statement 2 is correct
b. Statement 1 is correct; statement 2 is incorrect
c. Both statements are incorrect
d. Both statements are correct
Question 15 -
Statement 1: "Additional Paid-In Capital" in Chiptle's consolidated balance sheet consists of payments for capital stock in excess of the par value of the capital stock.
Statement 2: The capital stock of Chipotle is always valued at the current market value.
a. Both statements are incorrect
b. Both statements are correct
c. Statement 1 is correct; statement 2 is incorrect
d. Statement 1 is incorrect; statement 2 is correct
Question 16 -
Statement 1: The financial statements of Chipotle do not contain footnotes.
Statement 2: "Retained earnings" in Chipotle's shareholders' equity (see consolidated balance sheet) consists of earnings that have been generated and distributed as dividends to shareholders.
a. Statement 1 is incorrect; statement 2 is correct
b. Both statements are correct
c. Statement 1 is correct; statement 2 is incorrect
d. Both statements are incorrect
Question 17 -
According to the consolidated balance sheet of Chipotle, the Accounts receivable are corrected for allowance for doubtful accounts: "Accounts receivable, net of allowance for doubtful accounts of $259 and $1,176 as of December 31, 2016 and 2015, respectively 40,451 38,283". Based on this, it is safe to conclude that a possible journal entry applied by Chipotle would be:
a. Provision for doubtful accounts $XXX
Accounts receivable $XXX
b. Provision for doubtful accounts $XXX
Allowance for doubtful accounts $XXX
c. Cash $XXX
Allowance for doubtful accounts $XXX
d. Provision for doubtful accounts $XXX
Accounts receivable $XXX
Question 18 -
According to the consolidated balance sheet of Chipotle, the Accounts receivable are corrected for allowance for doubtful accounts: "Accounts receivable, net of allowance for doubtful accounts of $259 and $1,176 as of December 31, 2016 and 2015, respectively 40,451 38,283". Based on this, it is safe to conclude that:
a. About $259,000 and $1,176,000 were definitely uncollectible in, respectively 2016 and 2015, and should be written off from Accounts receivable.
b. About $259,000 and $1,176,000 were estimated to be bad debts in, respectively 2016 and 2015, and should be written off from Accounts receivable.
c. About $259,000 and $1,176,000 were estimated to be bad debts in, respectively 2016 and 2015, and could be written off from Accounts receivable.
d. About $259,000 and $1,176,000 were definitely bad debts in, respectively 2016 and 2015, and should be written off from Accounts receivable.
Question 19 -
According to the consolidated balance sheet of Chipotle, the Accounts receivable are corrected for allowance for doubtful accounts: "Accounts receivable, net of allowance for doubtful accounts of $259 and $1,176 as of December 31, 2016 and 2015, respectively 40,451 38,283". If in 2016, it is determined that $200,000 is determined to be definitely noncollectable and written off, then the net amount of Accounts receivable (=Accounts receivable corrected for allowance for doubtful accounts) would be:
a. $40,651
b. $40,192
c. $40,451
d. $40,251
Question 20 -
According to the consolidated balance sheet of Chipotle, the Accounts receivable are corrected for allowance for doubtful accounts: "Accounts receivable, net of allowance for doubtful accounts of $259 and $1,176 as of December 31, 2016 and 2015, respectively 40,451 38,283". If in 2016, it is determined that $200,000 is determined to be definitely noncollectable and written off, then the journal entry for this write-off would be:
a. Provision for doubtful accounts $XXX
Allowance for doubtful accounts $XXX
b. Provision for doubtful accounts $XXX
Accounts receivable $XXX
c. Allowance for doubtful accounts $XXX
Provision for doubtful accounts $XXX
d. Allowance for doubtful accounts $XXX
Accounts receivable $XXX
Question 21 -
On page 45 of the report, the following is stated regarding the allowance for doubtful accounts:
"The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable based on a specific review of account balances." Based on this statement, we can conclude that Chipotle uses as its base for estimating the allowance for doubtful accounts the:
a. The percentage of sales method
b. The allowance for doubtful accounts payable forecasting method
c. A combination of the aging of accounts receivable method and the percentage of sales method
d. Aging of accounts receivable method
Question 22 -
Chipotle's financial statement also includes a consolidated financial statement. This is because:
a. None of the above
b. Chipotle will then comply with the Uniform System of Accounts for Hotels and Restaurants
c. Chipotle will then comply with the requirements of its Board of Directors
d. Chipotle can then provide a picture of a single economic unit rather than separate legal entities
Question 23 -
Statement 1: The notes to the consolidated financial statement of Chipotle explains the basis of the consolidation principles and general practices in similar corporations.
Statement 2: Chipotle's consolidated financial statement reflects a single economic unit.
a. Both statements are incorrect
b. Statement 1 is correct; statement 2 is incorrect
c. Both statements are correct
d. Statement 1 is incorrect; statement 2 is correct
Question 24 -
Statement 1: We cannot determine from the financial statement of Chipotle Corporation whether its internal control of cash is adequate.
Statement 2: We can determine from Chipotle's financial statement that they apply the Direct Write-Off method of bad debt registration.
a. Both statements are correct
b. Both statements are incorrect
c. Statement 1 is incorrect; statement 2 is correct
d. Statement 1 is correct; statement 2 is incorrect
Question 25 -
Statement 1: Chipotle's inventory is valued at the Weighted Average Method.
Statement 2: Chipotle's property and equipment included in its financial statement comply with the required valuation method for these non-current assets.
a. Both statements are incorrect
b. Both statements are correct
c. Statement 1 is correct; statement 2 is incorrect
d. Statement 1 is incorrect; statement 2 is correct
Question 26 -
According to its financial statements, Chipotle's depreciation is based on the straight-line method (p. 45). The estimated useful lives of the assets to be depreciated are:
Leasehold improvements and buildings - 3-20 years
Furniture and fixtures - 4-7 years
Equipment - 3-10 years
Let's assume that the corporation changes its method period of depreciation from straight- line to sum-of-the-years' digits. Furthermore, assume that equipment is depreciated in 10 years, and its depreciable costs are $25 million. Based on this information, we can calculate that the depreciation in the third year will be equal to:
a. $3,636,363.64
b. $1,363,636.36
c. $2,272,727.27
d. $2,500,000
Question 27 -
According to its financial statements, Chipotle's depreciation is based on the straight-line method (p. 45). The estimated useful lives of the assets to be depreciated are:
Leasehold improvements and buildings - 3-20 years
Furniture and fixtures - 4-7 years
Equipment - 3-10 years
Let's assume that the corporation changes its method period of depreciation from straight- line to double declining balance method. Furthermore, assume that equipment is depreciated in 10 years, and its depreciable costs are $25 million. Based on this information, we can calculate that the depreciation in the third year will be equal to:
a. $2,560,000.0
b. $3,200,000.0
c. $2,048,000.0
d. $4,000,000.0
Question 28 -
Statement 1: At least one of the two types of shares of Chipotle (preferred and common) were issued at a higher value than the par value.
Statement 2: Chipotle's shareholders' equity was affected by prior period adjustments.
a. Both statements are correct
b. Statement 1 is correct; statement 2 is incorrect
c. Statement 1 is incorrect; statement 2 is correct
d. Both statements are incorrect
Question 29 -
Statement 1: If Chipotle buys back common shares, this is reflected in the owners' equity as a positive result.
Statement 2: A possible journal entry for an eventual Chipotle buy-back program would be
Cash $XXX
Treasury stock $XXX
a. Statement 1 is correct; statement 2 is incorrect
b. Both statements are incorrect
c. Both statements are correct
d. Statement 1 is incorrect; statement 2 is correct
Question 30 -
Statement 1: According to the consolidated cash flow statement, Chipotle paid more on its accounts receivable than it received credit on this account in the book year of 2016.
Statement 2: According to the consolidated cash flow statement, Chipotle provided more credit through accounts receivable than it received payments for this account in the book year of 2016.
a. Both statements are incorrect
b. Statement 1 is correct; statement 2 is incorrect
c. Statement 1 is incorrect; statement 2 is correct
d. Both statements are correct
Attachment:- Assignment Files.rar