Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 4: Question 4 (page 179)

Identify at least two situations in which application of different accounting methods or accounting estimates results in difficulties in comparing companies.

Short Answer

Expert verified

The changes made by the business entity in its inventory valuation methods and depreciation methods lead to difficulties in the comparison process.

Step by step solution

01

Accounting Methods

Accounting methods are the procedures and rules used to report theexpenses and revenues followed by a company. Cash and Accrual accounting are the two main methods of accounting.

02

Different accounting methods leading to difficulties

Identification of two situations:

  • Changes in inventory methods: Changes in inventory methods such as LIFO to FIFO make the comparison complicated because both methods provide distinct outcomes.
  • Changes in depreciation methods: Each depreciationmethod provides different results. Hence, changing depreciation computation from the straight line to the diminishing value method may lead to difficulty in comparing companies.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

What are the advantages and disadvantages of the single-step income statement?

What kinds of questions about future cash flows do investors and creditors attempt to answer with information in the income statement?

C.Reither Co. reports the following information for 2017: sales revenue \(700,000, cost of goods sold \)500,000, operating expenses \(80,000, and an unrealized holding loss on available-for-sale securities for 2017 of \)60,000. It declared and paid a cash dividend of \(10,000 in 2017. C Reither Co. has January 1, 2017, balances in common stock \)350,000; accumulated other comprehensive income \(80,000; and retained earnings \)90,000. It issued no stock during 2017.

Instructions

Prepare a statement of stockholders’ equity.

What is the basis for distinguishing between operating and non-operating items?

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?
See all solutions

Recommended explanations on Business Studies Textbooks

Financial Performance

Read Explanation

Corporate Finance

Read Explanation

Intermediate Accounting

Read Explanation

Change Management

Read Explanation

Strategic Direction

Read Explanation

Operational Management

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free