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 these financial statements and the accompanying notes to answer the following questions.
(a) What were P&G’s total assets at June 30, 2014? At June 30, 2013?
(b) How much cash (and cash equivalents) did P&G have on June 30, 2014?
(c) What were P&G’s research and development costs in 2013? In 2014?
(d) What were P&G’s revenues in 2013? In 2014?
(e) Using P&G’s financial statements and related notes, identify items that may result in adjusting entries for deferrals and accruals.
(f) What were the amounts of P&G’s depreciation and amortization expense in 2012, 2013, and 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) Which company had the greater percentage increase in total assets from 2013 to 2014?
(b) Using the Selected Financial Data section of these two companies, determine their 5-year average growth rates related to net sales and income from continuing operations.
(c) Which company had more depreciation and amortization expense for 2014? Provide a rationale as to why there is a difference in these amounts between the two companies.
Financial Statement Analysis Case
Kellogg Company has its headquarters in Battle Creek, Michigan. The company manufactures and sells ready-to-eat breakfast cereals and convenience foods including cookies, toaster pastries, and cereal bars.
Selected data from Kellogg Company’s 2014 annual report follows (dollar amounts in millions).
Instructions
(a) Compute the percentage change in sales, operating profit, net cash flow less capital expenditures, and net earnings from year to year for the years presented.
(b) Evaluate Kellogg’s performance. Which trend seems most favorable? Which trend seems least favorable? What are the implications of these trends for Kellogg’s sustainable performance objectives? Explain.
Accounting, Analysis, and Principles
Accounting
The Amato Theater is nearing the end of the year and is preparing for a meeting with its bankers to discuss the renewal of a loan.
The accounts listed below appeared in the December 31, 2017, trial balance.
Additional information is available as follows.
1. The equipment has an estimated useful life of 16 years and a salvage value of $40,000 at the end of that time. Amato uses the straight-line method for depreciation.
2. The note payable is a one-year note given to the bank January 31 and bearing interest at 10%. Interest is calculated on a monthly basis.
3. Late in December 2017, the theater sold 350 coupon ticket books at $50 each. Two hundred of these ticket books have been used by year-end. The cash received was recorded as Unearned Service Revenue.
4. Advertising paid in advance was $6,000 and was debited to Prepaid Advertising. The company has used $2,500 of the advertising as of December 31, 2017.
5. Salaries and wages accrued but unpaid at December 31, 2017, were $3,500.
Prepare any adjusting journal entries necessary for the year ended December 31, 2017.
Analysis
Determine Amato’s income before and after recording the adjusting entries. Use your analysis to explain why Amato’s bankers should be willing to wait for Amato to complete its year-end adjustment process before making a decision on the loan renewal.
Principles
Although Amato’s bankers are willing to wait for the adjustment process to be completed before they receive financial information, they would like to receive financial reports more frequently than annually or even quarterly. What trade-offs, in terms of relevance and faithful representation, are inherent in preparing financial statements for shorter accounting time periods?
