Financial Reporting Problem
The Procter & Gamble Company (P&G)
As stated in the chapter, notes to the financial statements are the means of explaining the items presented in the main body of the statements. Common note disclosures relate to such items as accounting policies, segmented information, and interim reporting.
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 specific items does P&G discuss in its Note 1—Summary of Significant Accounting Policies? (List the headings only.)
(b) For what segments did P&G report segmented information? Which segment is the largest? Who is P&G’s largest customer?
(c) What interim information was reported by P&G?
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) (1) What specific items does Coca-Cola discuss in its Note 1—Accounting Policies? (Prepare a list of the headings only.)
(2) What specific items does PepsiCo discuss in its Note 2—Our Summary of Significant Accounting Policies? (Prepare a list of the headings only.)
(b) For what lines of business or segments do Coca-Cola and PepsiCo present segmented information?
(c) Note and comment on the similarities and differences between the auditors’ reports submitted by the independent auditors of Coca-Cola and PepsiCo for the year 2014. *Financial Statement Analysis Case
RNA Inc. manufactures a variety of consumer products. The company’s founders have run the company for 30 years and are now interested in retiring. Consequently, they are seeking a purchaser who will continue its operations, and a group of investors,
Morgan Inc., is looking into the acquisition of RNA. To evaluate its financial stability and operating efficiency, RNA was requested to provide the latest financial statements and selected financial ratios. Summary information provided by RNA is as follows...
Instructions
(a) Calculate a new set of ratios for the fiscal year 2018 for RNA based on the financial statements presented.
(b) Explain the analytical use of each of the six ratios presented, describing what the investors can learn about RNA’s financial stability and operating efficiency.
(c) Identify two limitations of ratio analysis.
(CMA adapted)
Accounting, Analysis, and Principles
Savannah, Inc. is a company that manufactures and sells a single product. Unit sales for each of the four quarters of 2017 are projected as follows.
Quarter Units
First 80,000
Second 150,000
Third 550,000
Fourth 120,000
Annual total 900,000
Savannah incurs variable manufacturing costs of $0.40 per unit and variable nonmanufacturing costs of $0.35 per unit. Savannah will incur fixed manufacturing costs of $720,000 and fixed nonmanufacturing costs of $1,080,000. Savannah will sell its product for $4.00 per unit.
Accounting
Determine the amount of net income Savannah will report in each of the four quarters of 2017, assuming actual sales are as projected and employing the integral approach to interim financial reporting. (Ignore income taxes.) Repeat the analysis under the discrete approach.
Analysis
Compute Savannah’s profit margin on sales for each of the four quarters of 2017 under both the integral and discrete approaches.
Discuss the effects of employing the integral and the discrete approaches on the degree to which Savannah’s profit margin on sales varies from quarter to quarter.
Principles
Explain the conceptual rationale behind the integral approach to interim financial reporting.
