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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Vandross Company has recorded bad debt expense in the past at a rate of 1½% of accounts receivable, based on an aging analysis. In 2017, Vandross decided to increase its estimate to 2%. If the new rate had been used in prior years, cumulative bad debt expense would have been \(380,000 instead of \)285,000. In 2017, bad debt expense will be \(120,000 instead of \)90,000. If Vandross’s tax rate is 30%, what amount should it report as the cumulative effect of changing the estimated bad debt rate?
Presented below is information related to Viel Company on December 31, 2017, the end of its first year of operations.
Sales revenue $310,000
Cost of goods sold 140,000
Selling and administrative expenses 50,000
Gain on sale of plant assets 30,000
Unrealized gain on non-trading equity securities 10,000
Interest expense 6,000
Loss on discontinued operations 12,000
Allocation to non-controlling interest 40,000
Dividends declared and paid 5,000
Instructions
Compute the following: (a) income from operations, (b) net income, (c) net income attributable to Viel Company controlling shareholders, (d) comprehensive income, and (e) retained earnings balance on December 31, 2017. (Ignore income taxes.)
Identify at least two situations in which application of different accounting methods or accounting estimates results in difficulties in comparing companies.
(Income Statement, EPS) Presented below are selected ledger accounts of Tucker Corporation as of December 31, 2017.
Cash $50,000
Administrative expenses 100,000
Selling expenses 80,000
Net sales 540,000
Cost of goods sold 210,000
Cash dividends declared (2017) 20,000
Cash dividends paid (2017) 15,000
Discontinued operations (loss before income taxes) 40,000
Depreciation expense, not recorded in 2016 30,000
Retained earnings, December 31, 2016 90,000
Effective tax rate 30%
Instructions
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?
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