22 Accounting Changes and Error Analysis Financial Reporting Problem 22
Financial Reporting Problem
The Procter & Gamble Company (P&G)
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) Were there changes in accounting principles reported by P&G during the three years covered by its income statements (2012–2014)? If so, describe the nature of the change and the year of change.
(b) What types of estimates did P&G discuss in 2014?
Comparative Analysis Case
The Coca-Cola Company and PepsiCo, Inc.
The financial statements of Coca-Cola and PepsiCo are presented in Appendices C and D, respectively. The companies’ complete annual reports, including the notes to the financial statements, are available online.
Instructions
Use the companies’ financial information to answer the following questions.
(a) Identify the changes in accounting principles reported by Coca-Cola during the 3 years covered by its income statements (2012–2014). Describe the nature of the change and the year of change.
(b) Identify the changes in accounting principles reported by PepsiCo during the 3 years covered by its income statements (2012–2014). Describe the nature of the change and the year of change.
(c) For each change in accounting principle by Coca-Cola and PepsiCo, identify, if possible, the cumulative effect of each change on prior years and the effect on operating results in the year of change.
Accounting, Analysis, and Principles
In preparation for significant expansion of its international operations, ABC Co. has adopted a plan to gradually shift to the same accounting methods as used by its international competitors. Part of this plan includes a switch from LIFO inventory accounting to FIFO (recall that IFRS does not allow LIFO). ABC decides to make the switch to FIFO at January 1, 2017. The following data pertains to ABC’s 2017 financial statements (in millions of dollars)...
Accounting
Prepare ABC’s December 31, 2017, balance sheet and an income statement for the year ended December 31, 2017. In columns beside 2017’s numbers, include 2016’s numbers as they would appear in the 2017 financial statements for comparative purposes.
Analysis
Compute ABC’s inventory turnover for 2016 and 2017 under both LIFO and FIFO. Assume averages are equal to year-end balances where necessary. What causes the differences in this ratio between LIFO and FIFO?
Principles
Briefly explain, in terms of the principles discussed in Chapter 2, why GAAP requires that companies that change accounting methods recast prior year’s financial statement data.
