chapter9 Financial Accounting IFRS 3rd Edition Solutions Manual Weygandt Kimmel Kieso

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CHAPTER 9

Reporting and Analyzing Long-Lived Assets

ASSIGNMENT CLASSIFICATION TABLE

Study Objectives Questions ExercisesBrief Exercises ProblemsA ProblemsB

1 Describe how the cost

principle applies to

property, plant, and

equipment

2 Explain the concept of,

and calculate,

amortiza-tion

*12

3A, 4A, 5A6A, *11A,

*12A

3B, 4B, 5B, 6B,

*11B, *12B

3 Describe other

account-ing issues related to

amortization

4 Explain how to account

for the disposal of

prop-erty, plant, and

6 Indicate how long-lived

assets are reported in

the financial

state-ments

7 Describe the methods

for evaluating the use of

ASSIGNMENT CHARACTERISTICS TABLE

Problem

DifficultyLevel

TimeAllotted (min.)1A Analyze and record property transactions Simple 20-302A Classify operating and capital expenditures Moderate 15-20

3A Calculate straight-line amortization and compare

ef-fects of different methods

Moderate 40-50

4A Record property, plant, and equipment transactions;

prepare partial balance sheet

8A Record intangible asset transactions; prepare partial

*11A Calculate and compare amortization under

straight-line and declining-balance methods Moderate 30-40

*12A Calculate and compare amortization under

straight-line and units-of-activity methods Moderate 30-401B Analyze and record property transactions Simple 20-302B Classify operating and capital expenditures Moderate 15-20

3B Calculate straight-line amortization and compare

4B Record property, plant, and equipment transactions;

5B Calculate amortization; discuss revision of estimate Moderate 10-15

DifficultyLevel

TimeAllotted (min.)6B Record acquisition, amortization, and disposal of

*11B Calculate and compare amortization under

straight-line and declining-balance methods

Moderate 30-40

*12B Calculate and compare amortization under

straight-line and units-of-activity methods

Moderate 30-40

ANSWERS TO QUESTIONS

1. For long-lived assets, the cost principle requires that long-lived assets be recorded at cost, which consists of all expenditures necessary to acquire the asset and make it ready for its intended use The matching principle requires that the cost of a long-lived asset be amortized to expense over the asset’s useful life

2. RIM added $20 million in legal defence costs to its Patent account because the costs were considered necessary to prove the patent’s validity The costs were not recorded

as an operating cost because they benefit future periods of RIM

3. The main advantages of leasing are (1) reduced risk of obsolescence, (2) 100 percent financing, (3) income tax advantages, and (4) reduced recorded assets and liabilities

4 You should explain to the president that amortization is a process of allocating the cost

of a long-lived asset to expense over its service (useful) life in a rational and systematic manner Recognition of amortization is not intended to result in the accumulation of cash for replacement of the asset

5 The effects of the three methods on annual amortization expense are: Straight-line ults in a constant amount of amortization expense over the life of the asset Units-of-activity results in varying amounts of amortization expense, which changes with the level of activity so it is difficult to predict the effects in any year Declining-balance res-ults in decreasing amounts of amortization expense So the amortization expense is high in the early years and declines over time All three methods will charge the same

res-total amount to amortization expense over the life of the assets, it is just the allocation

of expense each period that varies

The effects of the three methods on net earnings are: Straight-line results in a constant net earnings since amortization expense is the same each year Units-of-activity will result in a variable net earnings since amortization expense will change with the level of activity in each year Declining-balance results in lower net earnings in the early years since amortization expense is higher and higher net earnings in the later years since amortization expense declines over the life of the asset All three methods will result in

the same total net earnings over the life of the assets, it is just the amount of expense

and resultant net earnings that varies each period

(The answer to Question 5 is continued on the next page.)

Questions (Continued)

5 (Continued) The effects of the three methods on the book value are: Straight-line ults in a declining book value at a constant rate each year since amortization expense and the amount added to the accumulated amortization account is the same Recall that book value is cost less accumulated amortization Units-of-activity will also result in

res-a declining book vres-alue but res-at res-a vres-arires-able res-amount since the res-amortizres-ation expense res-and amount added to the accumulated amortization account each year will also vary De-clining-balance will also result in a declining book value but at an increasing amount in the early years and a decreasing amount in the later years since amortization expense and the amount added to the accumulated amortization account each year is higher in the early years All three methods will end up with the same book value at the end of the asset’s useful life, it is just the allocation of expense each period that varies

6 Since Morgan uses the straight-line amortization method, its amortization expense will

be lower in the early years of an asset’s useful life as compared to using an accelerated method Petrunik’s amortization expense in the early years of an asset’s useful life will

be higher as compared to the straight-line method Morgan’s net earnings will be higher than Petrunik’s in the first few years of the asset’s useful life These differences will im-pact the amortization expense, accumulated amortization and net earnings of the com-panies making comparison of their results and financial position difficult In reality, the choice of amortization method results in an artificial, timing difference only and should

be ignored, if possible, in comparing financial positions

7 Yes, income tax regulations require a company to use a different amortization method (the single-declining-balance method), regardless of which method is used in preparing financial statements Lucien Corporation’s motivation for using the straight-line method for financial reporting is to ensure that the amortization method selected provides the best matching of expense to revenue

8 An impairment loss is a permanent decline in the market value of an asset This may happen when a machine has become obsolete, or the market for a product made by a machine has dried up or has become very competitive

9 Unlike inventories, the application of the lower of cost and market rule does not apply automatically to property, plant, and equipment Because inventory is expected to be converted into cash within the year, it is important to value it annually at the lesser of its cost and market, or saleable value In contrast, property, plant, and equipment are used

in operations over a longer term and are not available for resale The going concern

as-Questions (Continued)

11 Amortization must be updated from the last time adjusting entries were recorded to the date of the sale because the amortization expense must be properly matched to the rev-enue earned in the period the asset was still in use Updating amortization also aids in determining the amount of the gain or loss on disposition

12 In a sale of long-lived assets, the net book value of the asset is compared to the ceeds received from the sale If the proceeds of the sale exceed the net book value of the asset, a gain on disposal occurs If the proceeds of the sale are less than the net book value of the asset sold, a loss on disposal occurs The calculation is the same for

pro-an asset that is retired except that there are no proceeds received Since no proceeds are received in a retirement, a gain will never occur

13 The machine and related accumulated amortization should continue to be reported on the balance sheet without further amortization or adjustment until the asset is retired Reporting the asset and related accumulated amortization on the balance sheet informs the reader of the financial statements that the company is still using the asset Once an asset is fully amortized, even if it is still being used, no additional amortization should be taken on this asset In no situation, can the accumulated amortization on the asset ex-ceed the cost of the asset

14 Only intangible assets with limited lives such as patents and copyrights are amortized because their cost benefits a limited period of time Intangibles with unlimited lives such

as trademarks are not amortized because their cost benefits an unlimited period of time, but their book value is assessed annually for impairment and a loss recognized if a de-cline in value has occurred

15. The student is not correct The cost of intangibles with limited lives should be amortized over the shorter of that asset's useful life (the period of time when operations are be-nefited by use of the asset) or its legal life

16 Goodwill is the value of many favourable attributes that are intertwined in the business enterprise Goodwill can be identified only with the business as a whole and, unlike oth-

er assets, cannot be sold separately Goodwill can only be sold if the entire business is sold

Questions (Continued)

17 (a) Long-lived assets are normally reported on the balance sheet under the headings

“property, plant, and equipment” and “intangible assets.” The balances of the major classes of assets should be disclosed, as well as the accumulated amortization for amortizable assets, either on the balance sheet or in the notes to the financial statements

(b) The statement of earnings reports amortization expense and any gain or loss on disposal of long-lived assets The statement of earnings also reports any impair-ment losses, when the market value of a long-lived asset permanently declines be-low its cost

(c) The cash flow statement reports any cash paid to purchase long-lived assets and any cash received on their disposal in the investing activities section

18 The notes to financial statements should disclose the balance of the major classes of assets as well as the accumulated amortization for amortizable assets The amortiza-tion method(s) used must also be described and any impairment losses

19 (a) Grocery stores usually have a high asset turnover and a low profit margin

(b) Car dealerships normally have a low asset turnover and a high profit margin

20 ($ in U.S millions)

Return on assets:

Asset turnover:

21 The return on assets ratio measures the return being generated by each dollar invested

in the business (net earnings ÷ average total assets) The return on assets can also be calculated by multiplying the profit margin by the asset turnover ratio The profit margin measures how effective the business is at generating earnings from its sales and the asset turnover measures how well the company can generate sales from a given level

*22 Straight-line and units-of-activity measures apply the amortization criteria to the original cost of the assets over a fixed period (in years or in units), which must be reduced by salvage value to get an accurate representation of the amortizable cost of the assets to the company Because the declining-balance method applies the amortization criteria, not to the original cost, but to a declining book value, the original cost is used instead

of the amortizable cost Applying a fixed percentage rate to a declining balance will ways result in an ending, residual amount Salvage value is considered in the declin-ing-balance method in that the asset is never amortized below its salvage value, so in effect; this residual amount is adjusted to equal salvage value

al-*23 The straight-line and declining-balance methods use annual amortization rates in their amortization calculations Therefore, the result must be adjusted for any period less than one year The units-of-activity method does not need to be adjusted for partial periods as this method multiplies the total production output by the actual production for the period This already reflects how much the asset was used during the period For example, if an asset was purchased July 1 and produced 10,000 units for the period July through December, it already produces a result for that six month period (the com-pany could not have produced units before it purchased the asset) and therefore does not need to be adjusted for the half year ownership period

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 9-1

All of the expenditures, except the fence, should be included in the cost of the land fore, the cost of the land is $56,000 ($50,000 + $2,500 + $3,500) The fence would be in-cluded in the cost of land improvements

There-BRIEF EXERCISE 9-2

The cost of the truck is $28,400 (cash price $28,000 + painting and lettering $400) The penditures for insurance and motor vehicle licence should be expensed, not added to the cost of the truck

amortiz-2005 is $6,667 ($10,000 X 8/12) and $10,000 for 2006

(a) Amortization Expense (($72,000 - $2,000) ÷ 5) X 9/12) 10,500

Accumulated Amortization—Office Equipment 10,500(b) Cash 21,000

Accumulated Amortization—Office Equipment 52,500

Gain on Disposal 1,500Office Equipment 72,000

Less: Accumulated amortization 52,500*

* Amortization Jan 1, 2003 – Dec 31, 2005 ($72,000 - $2,000) ÷ 5 X 3 years $42,000Amortization Jan 1, 2006 – Sept 30, 2006 10,500

BRIEF EXERCISE 9-7

(a) Accumulated Amortization—Delivery Equipment 42,000

Delivery Equipment 42,000(b) Accumulated Amortization—Delivery Equipment 40,000

Loss on Disposal 2,000

Delivery Equipment 42,000

Cost of delivery equipment $42,000Less: Accumulated amortization 40,000Book value at date of disposal 2,000

BRIEF EXERCISE 9-8

Goodwill is an intangible asset with an indefinite useful life Intangible assets with indefinite useful lives are not amortized but their value must be reviewed annually and an impairment loss recorded if the asset’s market value permanently falls below its book value If the decline

in value of Royal Bank of Canada’s goodwill is assessed as being permanent an impairment loss of $130 million should be recorded on the company’s statement of earnings and the goodwill should be reported at $4,416 ($4,546 - $130) million

BRIEF EXERCISE 9-9

(a) (1) Jan 2 Patents 180,000

Cash 180,000 (2) Dec 31 Amortization Expense ($180,000 ÷ 10) 18,000

CANADIAN TIRE CORPORATION, LIMITED

Balance Sheet (Partial)January 1, 2005(in millions)Property, plant, and equipment

Land $ 672.1Buildings $1,987.5

Less: Accumulated amortization—buildings 652.5 1,335.0Furniture and equipment $470.2

Less: Accumulated amortization—fixtures and

equipment 316.4 153.8Leasehold improvements $201.0

Less: Accumulated amortization—

leasehold improvements 69.0 132.0Other property, plant, and equipment, net 292.3 Total property, plant, and equipment 2,585.2Intangibles

Mark’s Work Wearhouse store brands and banners $50.0

Mark’s Work Wearhouse franchise agreements 2.0 52.0Goodwill 41.7Total intangibles 93.7

÷+

times1.9

=2) ,8649($11,609

$20,653

÷+

SOLUTIONS TO EXERCISES

EXERCISE 9-1

(a)Under the cost principle, the acquisition cost for property, plant, and equipment includes

all expenditures necessary to acquire the asset and make it ready for its intended use For example, the cost of factory machinery includes the purchase price, freight costs paid by the purchaser, insurance costs during transit, and installation costs

(b) If Costello used the declining-balance method instead of the straight-line method the

straight-line method would result in the highest book value for the first two years and the highest net earnings There would be no difference in the cash flow

$90,000 - $12,000Straight-line method: =$15,600 per year

5

(c) If the company accepts Lindy’s proposed changes in useful life and salvage value, the

amortization expense will be higher, due to the proposed shorter useful life and lower salvage value

Although students have not been asked to calculate the revised amortization expense, and there is insufficient information in the textbook to enable them to do so, the calcu-lation follows if you wish to expand on this concept in class:

The revised salvage value is deducted from t he net book vale in the

numerat-or In the denominator the remaining useful life, 2 years, is used Note that two years have already past

(To record the impairment loss on equipment)

(c) The impairment loss should be reported in the statement of ings as part of earnings from continuing operations Often, the loss is combined with amortization expense for reporting purposes

earn-EXERCISE 9-5

Jan 1 Loss on Retirement 6,200

Accumulated Amortization—Machinery ($62,000 ÷ 10 X 9) 55,800Machinery 62,000

June 30 Amortization Expense ($5,475 ÷ 3 X 6/12) 913

Accumulated Amortization—Computer 913

30 Cash 500

Accumulated Amortization—Computer 4,563($5,475 ÷ 3 X 2 = $3,650; $3,650 + $913)

Loss on Disposal [$500 - ($5,475 - $4,653)] 412

Computer 5,475Dec 31 Amortization Expense [($27,000 - $3,000) ÷ 4] 6,000

Accumulated Amortization—Truck 6,000

31 Cash 10,000

Accumulated Amortization—Truck 18,000[($27,000 - $3,000) ÷ 4 X 3]

Gain on Disposal 1,000Truck 27,000

EXERCISE 9-6

(a)

Jan 2 Patents 40,000

Cash 40,000April 1 Goodwill 300,000

Cash 300,000July 1 Franchise 250,000

Cash 250,000Sept 1 Research Expense 150,000

Cash 150,000

30 Development Expense 50,000

Cash 50,000Dec 31 Amortization Expense–Patents ($40,000 ÷ 5) 8,000

Amortization Expense–Franchise [($250,000 ÷ 10) X 6/12] 12,500

Accumulated Amortization—Patents 8,000Accumulated Amortization—Franchise 12,500

31 Given that market value exceeded book value in all cases, no impairment loss is recognized

(b)

COLLINS LTD

Balance Sheet (Partial)December 31, 2006Intangibles

Finite-life intangiblesPatents $40,000

Less: Accumulated amortization—patents 8,000 $ 32,000Franchise $250,000

Less: Accumulated amortization—franchise 12,500 237,500

269,500Goodwill 300,000Total intangibles $569,500

com-EXERCISE 9-8

1 Amortization is the process of allocating the cost of a long-lived asset to expense over the asset’s useful life Because the value of land generally does not decline with time and usage, its usefulness and revenue producing ability does not decline In addition, the useful life of land is indefinite Therefore it would be incorrect for the student to amortize the land

2 Goodwill is an intangible asset with an indefinite life According to generally accepted accounting principles, goodwill is not amortized but reviewed annually for impairment If

a permanent decline in value has occurred, the goodwill is written down and an ment loss is recorded on the statement of earnings Therefore the amortization entry should be reversed and no decline in value recorded until an impairment in value oc-curs

impair-3 This is a violation of the cost principle Because current market values are subjective and not reliable, they are not used to increase the recorded value of an asset after ac-quisition The appropriate accounting treatment is to leave the building on the books at its zero book value

EXERCISE 9-9

(a)

Accumulated amortization – Balance Sheet Property, plant, and

Accumulated amortization – Balance Sheet Intangibles

finite-life intangible assets

Accumulated amortization – Balance Sheet Property, plant, and

Accumulated amortization – Balance Sheet Property, plant, and

Accumulated amortization – Balance Sheet Property, plant, and

Accumulated amortization – Balance Sheet Property, plant, and

Amortization expense Statement of Earnings Operating expenses

equipmentCash paid for capital expenditures Cash Flow Statement Investing activitiesFinite-life intangible assets Balance Sheet Intangibles

Indefinite-life – intangible assets Balance Sheet Intangibles

equipmentMachinery and equipment Balance Sheet Property, plant, and

equipmentOther property, plant, and equipment Balance Sheet Property, plant, and

equipmentPlant under construction Balance Sheet Property, plant, and

equipment

EXERCISE 9-9 (Continued)

(a) (Continued)

EquipmentTelecommunications assets Balance Sheet Property, plant, and

equipment(b)

BCE INC

Balance Sheet (Partial)December 31, 2004(in millions) Property, plant, and equipment

Land $ 95Buildings $2,682

Less: Accumulated amortization 1,384 1,298Plant under construction 1,605Machinery and equipment $5,529

Less: Accumulated amortization 3,039 2,490Satellites $1,769

Less: Accumulated amortization 758 1,011Telecommunications assets $35,481

Less: Accumulated amortization 23,469 12,012Other property, plant, and equipment $278

Less: Accumulated amortization 97 181

Intangible assets

Finite-life intangible assets $4,124

Less: Accumulated amortization 1,418 2,706Indefinite-life intangible assets (other than goodwill) 2,916Goodwill 8,413Total intangible assets 14,035

=2

$4,516.1)($4,681.7

$173.1

÷+

=2

$4,516.1)($4,681.7

$11,046.8

÷+

2005 amortization expense = 1,300 hours X $7.80 = $10,140

2006 amortization expense = 1,800 hours X $7.80 = $14,040

Calculations: Double Declining-Balance Method

The declining-balance rate is 1/5 X 2 = 40%

ue pattern of the specific asset For an asset that generates revenues fairly constantly over time, the straight-line method is appropriate The declining-balance method best fits assets that are more productive (will generate more revenue) in the earlier years of their life The units-of-activity method best fits assets whose usage varies over time

*EXERCISE 9-12

(a)

(1) Straight-line method

$1,1254

Amortization Expense

Net Book Value

(2) Double declining-balance method

Proceeds - book value = Gain (loss)

$1,225 - $625 = $600

(c) (1) Straight-line method

Amortization expense: $3,375 + Loss: $400 = $3,775

(2) Double-declining balance method

Amortization expense: $4,375 - (Gain: $600) = $3,775

Note: There is no difference in the total expense over the life of the asset

Note: Students could also have prepared individual journal entries for each transaction.

PROBLEM 9-1A

Account Debited Explanation

makes the factory office more productive.

If the loss was considered to be significant, it would be recorded separately as a loss due to labour dispute, rather than as repair expense.

If the damage was covered by insurance, a ceivable (from the insurance company) ac- count would be debited.

re-If the loss was considered to be significant, it would be recorded separately as a loss due to damages, rather than as repair expense.

PROBLEM 9-2A

The one-year insurance policy is not included as it benefits only the current

period It would be recorded as Prepaid Insurance and allocated to Insurance

Expense throughout the period.

Accumulated Amortization

Net Book Value

20%** X 8/12 20%

$ 23,027 57,567

0 92,107 126,647 161,187 172,700

$161,173 126,633 92,093 57,553 23,013 11,500

* Amortizable cost = $184,200 - $11,500 = $172,700

** 1 ÷ 5 years = 20%

PROBLEM 9-3A (Continued)

(c) Straight-line amortization results in a constant amount of amortization expense each period The declining-balance method results in a higher amortization expense in the early years and lower amortization expense

in the later years In comparing these two methods, straight-line ization would result in a lower amount of amortization expense than that produced by the declining-balance method in the early years and a higher amount in the later years This would consequently affect net earnings inversely That is, net earnings would be higher for straight-line amortization in the early years and lower in the later years Over the six-year useful life of the machine, both methods would result in the same total amortization expense (equal to the amortizable cost) and same total net earnings.

amort-Because amortization expense would be lower in the early years for straight-line amortization, net book value (cost less accumulated amort- ization) would be higher in the early years than the result produced by the declining-balance method of amortization and lower in the later years Of course, at the end of the six-year life, both methods would end

up with the same net book value, $11,500.

(d) It is difficult to compare the straight-line and units-of-activity methods of amortization Straight-line amortization results in a constant amount of amortization expense and net earnings The units-of-activity method will result in varying amount of amortization expense and resultant net earn- ings, depending on the actual amount of production activity in each par- ticular period Nonetheless, over the life of the asset, both methods res- ult in the same total net earnings and will end up with the same net book value, $11,500.

(e) The matching principle dictates that the cost of a long-lived asset should

be matched to the revenue produced by that asset Since the pattern of revenue production is different for each type of asset, each amortization method should be chosen based on the revenue pattern of the specific asset.

(a) April 1 Land 2,200,000

Cash 440,000 Note Payable 1,760,000

May 1 Amortization Expense 20,000

Accumulated Amortization

1 Cash 200,000 Accumulated Amortization—Equipment 440,000

Equipment 600,000 Gain on Disposal 40,000

Accumulated amortization—equipment [($600,000 X 1/10) X 7 + $20,000)] 440,000

PROBLEM 9-4A (Continued)

(b) Dec 31 Amortization Expense 662,500

31 Interest Receivable 42,000

Interest Revenue 42,000 ($1,440,000 X 5% X 7/12)

PROBLEM 9-4A (Continued)

Less: Accumulated amortization

—buildings 12,762,500 13,737,500 Equipment $40,000,000

Less: Accumulated amortization

—equipment 8,075,000 31,925,000

*See T accounts on the following page.

PROBLEM 9-4A (Continued)

(b) You would expect the amortization expense to increase in 2006 after the

change in useful life because the amortizable cost will be expensed over a shorter period of time.

(c) The change in the useful life should only affect current and future periods

The rationale for this is that the original estimate was based on tion known at the time the asset was purchased and the revision is based

informa-on new informatiinforma-on and should informa-only affect future periods In additiinforma-on, if

pri-or periods where regularly restated users would feel less confident about financial statements.

(d) If the company had not revised the remaining useful life, the total

amortiz-ation expense over the equipment’s life would be the amortizable cost of

$62,000 The accumulated amortization at the end of the equipment’s useful life would be $62,000 and the net book value would be $3,000.

(e) The total amortization expense would not change after the useful life has

been revised There would be no changes to the accumulated

amortiza-PROBLEM 9-5A

PROBLEM 9-6A (Continued)

(c)

(1) Sept 30 Loss on Disposal 1,000

Cash 37,000 Accumulated Amortization—Equipment

($6,000 + $12,000 + $9,000) 27,000 Equipment 65,000

Cost $65,000

Accum amort.—Equipment 27,000

Book value 38,000

is not amortized Instead goodwill should be review annually for any

impairment in value Therefore any amortization expense recorded must

(a) Jan 5 Trade Name 7,000

PROBLEM 9-8A (Continued)

(c)

GHANI CORPORATION Balance Sheet (Partial) December 31, 2006 Intangible assets

Limited life intangibles

Patent $50,000

Accumulated amortization 1,250 $ 48,750 Copyrights $216,0001

Accumulated amortization 51,0002 165,000 Indefinite life intangibles

(a) (U.S $ in millions) Green Mountain Starbucks

1 Profit margin

2 Return on assets

3 Asset turnover

(b) Based on profit margin we can see that Starbucks is slightly more profitable

than Green Mountain Green Mountain’s profit margin at 5.7% is lower then

the average company in the industry (7.3%) However, this could be due to

the fact that Green Mountain is smaller in size than the other companies

and may be at a competitive disadvantage

The return on assets ratio indicates that Starbucks is generating a better

re-turn than Green Mountain based on the amount of assets invested in the

business Based on the industry average of 11.7% Starbucks is generating

a higher return on their assets than most other companies in the industry.

$137.4

=2.0 times ($78.3 + $60.0) ÷ 2

$5,294.2

=1.7 times ($3,328.2 + $2,729.7)

PROBLEM 9-9A

PROBLEM 9-9A (Continued)

(b) (Continued)

The asset turnover measures how efficiently a company uses its assets to generate sales It shows the dollars of sales generated by each dollar in- vested in assets Green Mountain’s asset turnover ratio (2.0) was higher than Starbucks’ (1.7) in 2004 Therefore, it could be concluded that, in

2004, Green Mountain was more efficient than Starbucks in utilizing assets

to generate sales Green Mountain is higher than the industry average of 1.7 times and Starbucks is on par with the industry average.

Overall, it appears that Green Mountain is focusing its sales strategy on generating volume whereas Starbucks seems to be more focused on profit- ability

The ability to compare the two companies is complicated by the fact that Starbucks is significantly larger than Green Mountain Coffee However, this fact doesn’t appear to have impeded Green Mountain’s efficiency.