Question

Papa John’s International, Inc., operates and franchises pizza delivery and carryout restaurants in domestic and global markets. In its December 30, 2012, 10-K filing with the SEC, Papa John’s discloses the following relationship with a variable interest entity (VIE):
Through February 2011, we had a purchasing arrangement with BIBP, a special-purpose entity formed at the direction of our Franchise Advisory Council, for the sole purpose of reducing cheese price volatility to domestic system-wide restaurants. BIBP was an independent, franchisee-owned corporation. BIBP purchased cheese at the market price and sold it to our distribution subsidiary, PJ Food Service, Inc. (“PJFS”), at a fixed price. PJFS in turn sold cheese to Papa John’s restaurants (both Company-owned and franchised) at a set price. PJFS purchased $25.1 million of cheese for the three months ended March 27, 2011, and $153.0 million of cheese during 2010 from BIBP.

Required:
1. Discuss the primary business rationale for Papa John’s purchasing arrangement with BIBP.
2. What criteria did Papa John’s use to determine if it should consolidate BIBP in its financial statements?
3. Assuming that Papa John’s consolidated BIBP, how were the intra-entity sales described above accounted for in the consolidation process?



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  • CreatedSeptember 10, 2014
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