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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

(Multiple-Step Statement) The following balances were taken from the books of Alonzo Corp. on December 31, 2017.

Interest revenue \(86,000 Accumulated depreciation equipment \)40,000

Cash \(51,000 Accumulated depreciation鈥攂uildings \)28,000

Sales revenue \(1,380,000 Notes receivable \)155,000

Accounts receivable \(150,000 Selling expenses \)194,000

Prepaid insurance \(20,000 Accounts payable \)170,000

Sales returns and allowances \(150,000 Bonds payable \)100,000

Allowance for doubtful accounts \(7,000 Administrative and general expense \)97,000

Sales discounts \(45,000 Accrued liabilities \)32,000

Land \(100,000 Interest expense \)60,000

Equipment \(200,000 Notes payable \)100,000

Buildings \(140,000 Loss from earthquake damage \)150,000

Cost of goods sold \(621,000 Common stock \)500,000

Retained earnings $21,000

Assume the total effective tax rate on all items is 34%.

Instructions

Prepare a multiple-step income statement; 100,000 shares of common stock were outstanding during the year.

Vandross Company has recorded bad debt expense in the past at a rate of 1陆% of accounts receivable, based on an aging analysis. In 2017, Vandross decided to increase its estimate to 2%. If the new rate had been used in prior years, cumulative bad debt expense would have been \(380,000 instead of \)285,000. In 2017, bad debt expense will be \(120,000 instead of \)90,000. If Vandross鈥檚 tax rate is 30%, what amount should it report as the cumulative effect of changing the estimated bad debt rate?

Which of the following statements is correct regarding income reporting under IFRS?

(a) IFRS does not permit revaluation of property, plant, equipment, and intangible assets.

(b) IFRS provides the same options for reporting comprehensive income as GAAP.

(c) Companies must classify expenses by nature.

(d) IFRS provides a definition for all items presented in the income statement.

(Single-Step Statement, Retained Earnings Statement, Periodic Inventory) Presented below is the trial balance of Thompson Corporation on December 31, 2017.

THOMPSON CORPORATION
TRIAL BALANCE

DECEMBER 31, 2017

Debit (\()

Credit (\))

Purchase Discounts

\(10,000

Cash

\)189,700

Accounts receivables

105,000

Rent Revenue

18,000

Retained Earnings

160,000

Salaries and Wages payable

18,000

Sales Revenue

1,100,000

Notes Receivables

110,000

Accounts payable

49,000

Accumulated Depreciation

28,000

Sales discount

14,500

Sales return and allowances

17,500

Notes payable

70,000

Selling expenses

232,000

Administrative expenses

99,000

Common Stock

300,000

Income tax expenses

53,900

Cash Dividends

45,000

Allowance for Doubtful Accounts

5,000

Supplies

14,000

Freight-In

20,000

Land

70,000

Equipment

140,000

Bonds Payable

100,000

Gain on Sale of Land

30,000

Accumulated Depreciation

19,600

Inventory

89,000

Buildings

98,000

Purchases

610,000

Totals

\(1,907,600

\)1,907,600

A physical count of inventory on December 31 resulted in an inventory amount of \(64,000; thus, cost of goods sold for 2017 is \)645,000.

Instructions

Prepare a single-step income statement and a retained earnings statement. Assume that the only changes in retained earnings during the current year were from net income and dividends. Thirty thousand shares of common stock were outstanding the entire year.

Starr Co. had sales revenue of \(540,000 in 2017. Other items recorded during the year were:

Cost of goods sold \)330,000

Salaries and wages expense 120,000

Income tax expense 25,000

Increase in value of company reputation 15,000

Other operating expenses 10,000

Unrealized gain on value of patents 20,000

Prepare a single-step income statement for Starr for 2017. Starr has 100,000 shares of stock outstanding.
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