Compute the percentage change for each category of revenues and expenses for 2002 to 2003, 2003 to…

Research Assignment Using real-world data from Wendy’s

Obtain the 2002, 2003, 2004, 2005, and 2006 income statements for Wendy’s International, Inc. The 2004–2006 statements are included in Wendy’s 2006 annual report and Form 10-Ks. The 2002 and 2003 statements are in its 2003 and 2004 annual reports. To obtain the Form 10-Ks you can use the EDGAR system following the instructions in Appendix A, or they can be found under the Investors” link on the company’s corporate . The company’s annual reports are also available on its website.

Required

a. Compute the percentage change for each category of revenues and expenses for 2002 to 2003, 2003 to 2004, and 2004 to 2005, except for the item Other expenses (income).” Also, ignore income taxes and the items below it. Note: do not compute percentages for subtotals and totals, such as Total costs and expenses,” or Operating income.” Using an Excel spreadsheet will make this task easier. Once these averages are obtained (you should have three averages for each of the 10 revenue and expense items), calculate an average of the changes for each item. The answer for the Franchise revenues” item is shown as an example.

Percentage Change

2002–2003

3%

2003–2004 2004–2005

(50) 13

Average of the changes

(11)%

b. Prepare a budgeted income statement for 2006, and compare the budgeted data to the actual results for 2006. To calculate budgeted amounts, multiply the average change in each revenue and expense item, from Requirement b, by the dollar amount of the corresponding revenue or expense from 2005. This will represent the budgeted amount for that item for 2006. Don’t forget to use decimal data and not percentage data. Subtract the actual 2006 results from the budgeted results. Finally, divide the actual versus budgeted difference by the budgeted amount to determine a percentage variance from the budget. Calculate totals and subtotals on the budgeted income statement, such as Total revenues” and Income from continuing operations before taxes,” by adding or subtracting the appropriate items. The answer for the Franchise revenues” item is shown as an example. (Dollar amounts are in thousands.)

(1)

(2)

(3)

(4)

(5)

(5 4 3)

Average

(1 x 2)

Percentage

2005

3-year

2006

2006

(3 – 4)

Variance

Actual

Change

Budget

Actual

Variance

from Budget

Franchise revenues

$317,053

(.11)

$281,408

$284,670

$3,262

.0116 [1.16%]

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