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Chapter 4: 1FRP (page 192)

The financial statements of P&G are presented in Appendix B. The company鈥檚 complete annual report, including the notes to the financial statements, is available online.

Instructions

Refer to P&G鈥檚 financial statements and the accompanying notes to answer the following questions.

(a) What type of income statement format does P&G use? Indicate why this format might be used to present income statement information.

(b) What are P&G鈥檚 primary revenue sources?

(c) Compute P&G鈥檚 gross profit for each of the years 2012鈥�2014. Explain why gross profit decreased in 2014.

(d) Why does P&G make a distinction between operating and nonoperating revenue?

(e) What financial ratios did P&G choose to report in its 鈥淔inancial Summary鈥� section covering the years 2009鈥�2014?

Short Answer

Expert verified

The gross profit for the year 2012, 2013, and 2014 is $32,390, $32,523, and $32,564 respectively.

Step by step solution

01

Meaning of Financial Statements

Financial statements refer to the annual reports that a business entity prepares to determine its growth, solvency, liquidity, and profitability. It includes an income statement, balance sheet, cash flow statement, and statement of retained earnings.

02

Type of income statement format

The P&G Company chooses the consolidated income statement format to present its information associated with revenues and expenses.

03

Primary sources of revenue

The primary sources of revenue for the company are the sale of goods and revenue generated through interest.

04

Computation of gross profit

05

Requirement for differentiating operating and non-operating revenue

The company differentiates the operating and non-operating revenues for a better understanding of theusers.

It also facilitates in presenting the information associated withrevenuesaccurately.

In addition, users of financial information can draw effective decisions from the bifurcated revenue data provided to them.

06

Financial ratios reported in “Financial Summary”

The company reported solvency ratios in its financial summary to present its ability to continue as a going concern.

Solvency ratios mainly include debt ratio, debt to equity ratio, and many more.

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Most popular questions from this chapter

Discuss the appropriate treatment in the income statement for the following items:

(a) Loss on discontinued operations.

(b) Non-controlling interest allocation.

(c) Earnings per share.

(d) Gain on sale of equipment.

Explain the transaction approach to measuring income. Why is the transaction approach to income measurement preferable to other ways of measuring income?

Question: What major types of items are reported in the retained earnings statement?

Generally accepted accounting principles usually require the use of accrual accounting to 鈥渇airly present鈥� income. If the cash receipts and disbursements method of accounting will 鈥渃learly reflect鈥� taxable income, why does this method not usually also 鈥渇airly present鈥� income?

(Multiple-Step Statement, Retained Earnings Statement) The following information is related to Dickinson Company for 2017.

Retained earnings balance, January 1, 2017 \(980,000

Sales revenue 25,000,000

Cost of goods sold 16,000,000

Interest revenue 70,000

Selling and administrative expenses 4,700,000

Write-off of goodwill 820,000

Income taxes for 2017 1,244,000

Gain on the sale of investments 110,000

Loss due to flood damage 390,000

Loss on the disposition of the wholesale division (net of tax) 440,000

Loss on operations of the wholesale division (net of tax) 90,000XXX

Dividends declared on common stock \)250,000

Dividends declared on preferred stock 80,000

Dickinson Company decided to discontinue its entire wholesale operations (considered a discontinued operation) and to retain its manufacturing operations. On September 15, Dickinson sold the wholesale operations to Rogers Company. During 2017, there were 500,000 shares of common stock outstanding all year.

Instructions

Prepare a multiple-step income statement and a retained earnings statement.
See all solutions

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