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Chapter 4: 12 (page 179)
What is the basis for distinguishing between operating and non-operating items?
Operating items report only the principal operations, and non-operating items reports secondary activities of the company.
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The financial statements of P&G are presented in Appendix B. The company’s complete annual report, including the notes to the financial statements, is available online.
Instructions
Refer to P&G’s 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’s primary revenue sources?
(c) Compute P&G’s gross profit for each of the years 2012–2014. 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 “Financial Summary” section covering the years 2009–2014?
Tim Mattke Company began operations in 2015 and for simplicity reasons, adopted weighted-average pricing for inventory. In 2017, in accordance with other companies in its industry, Mattke changed its inventory pricing to FIFO. The pretax income data is reported below.
Year Weighted Average FIFO
2015 \(370,000 \)395,000
2016 390,000 \(430,000
2017 410,000 \)450,000
Instructions
Show comparative income statements for Tim Mattke Company, beginning with income before income tax, as presented on the 2017 income statement.
Question: Counting Crows Inc. provided the following information for the year 2017.
Retained earnings, January 1, 2017 $600,000
Administrative expenses 240,000
Selling expenses 300,000
Sales revenue 1,900,000
Cash dividends declared 80,000
Cost of goods sold 850,000
Loss on discontinued operations 110,000
Rent revenue 102,700
17,000
Income tax applicable to continuing operations 187,000
Income tax benefit applicable to loss on discontinued operations 60,500
Income tax applicable to unrealized holding
gain on available-for-sale securities 2,000
Accounting
Prepare
(a) a single-step income statement for 2017,
(b) a retained earnings statement for 2017, and
(c) a statement of comprehensive income using the two statement format. Shares outstanding during 2017 were 100,000.
Analysis
Explain how a multiple-step income statement format can provide useful information to a financial statement user.
Principles
In a recent meeting with its auditor, Counting Crows’ management argued that the company should be able to prepare a pro forma income statement with some one-time administrative expenses reported similar to discontinued operations. Is such reporting consistent with the qualitative characteristics of accounting information as discussed in the conceptual framework? Explain.
Brisky Corporation had net sales of \(2,400,000 and interest revenue of \)31,000 during 2017. Expenses for 2017 were cost of goods sold \(1,450,000, administrative expenses \)212,000, selling expenses \(280,000, and interest expense \)45,000. Brisky’s tax rate is 30%. The corporation had 100,000 shares of common stock authorized and 70,000 shares issued and outstanding during 2017. Prepare a single-step income statement for the year ended December 31, 2017.
In 2017, Hollis Corporation reported net income of \(1,000,000. It declared and paid preferred stock dividends of \)250,000. During 2017, Hollis had a weighted average of 190,000 common shares outstanding. Compute Hollis’s 2017 earnings per share.
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