P&G Intermediate Ii Essay

1825 Words Sep 5th, 2011 8 Pages

a) What type of income statement format does P&G use? Indicate why this format might be used to present income statement information.

The type of income statement format that P&G uses is the single-step income statement format. This format is often used by companies to report revenues, gains, expenses, and losses. In this particular format, expenses are deducted from revenues in order to arrive at a net income or a net loss which is where the term “single-step” came from. The companies that do use the single-step income statement use it because of its simplicity. The main advantage of using the single-step income statement is that the format is presented in a very simple way and the fact that it is not
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According to the textbook, Kieso, Weygandt, and Warfield explain that, “ The reporting of gross profit provides a useful number for evaluating performance and predicting future earnings. Statement readers may study the trend in gross profits to determine how successfully a company uses its resources. They also may use that information to understand how competitive pressure affected profit margins” (Wiley pg. 137).

d) Why does P&G make a distinction between operating and non-operating revenue?
P&G makes a distinction between operating and non-operating revenue because in their financial statements they explain that, “Non-operating items primarily include interest expense, divestiture gains and interest and investment income. Interest expense increased 17% in 2007 to $1.3 billion. In 2006, interest expense increased 34% to $1.1 billion. The increases in both 2007 and 2006 were primarily due to the financing costs associated with the debt issued to fund the publicly announced share repurchase program in conjunction with the acquisition of Gillette in October 2005. The repurchase program was completed in July 2006 with cumulative repurchases since the inception of the program of $20.1 billion. We repurchased $19.8 billion of P&G shares under the program through 2006 and the remaining $0.3 billion in 2007. Other non-operating income increased $281 million in 2007 to $564 million primarily due to higher divestiture gains in the current year.

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