Financial Reporting Problem

PROJECT ONE

Chapter 5

Financial Reporting Problem - The Procter & Gamble Company (P&G)

(a) P&G could adopt the account form or the report form. P&G adopted the account form.

(b) Companies use 4 methods to disclose pertinent information in balance sheet.

1. Parenthetical explanations

2. Notes

3. Cross-reference and contra items

4. Supporting schedules

P&G uses parenthetical explanations, notes and supporting schedules.

(c) P&G’s investments reported in current assets of the balance sheet.

In Investments under Note 1, it stated that “Investment securities consist of auction rate securities that approximate fair value, readily marketable debt and equity securities that are classified as trading with unrealized gains or losses charged to earnings, and available-for-sale securities with unrealized gains or losses charged to shareholders’ equity. Investments in certain companies over which we exert significant influence, but do not control the financial and operating decisions, are accounted for as equity method investments. Other investments that are not controlled, and over which we do not have the ability to exercise significant influence, are accounted for under the cost method and are included in other noncurrent assets.”

Working capital on June 30, 2007 is –6,686,000,000.

Working capital on June 30, 2006 is 4,344,000,000.

(d) P&G’s cash flows from operating, investing, and financing activities for 2007 are as follows:

Cash flows from operating activities $ 13,435,000,000

Cash flows from investing activities -2,483,000,000

Cash flows from financing activities -12,478,000,000

Operating activities over the period 2005 to 2007 are as follows (in millions):

2007 2006 2005

Net cash provided by operating activities 13,435 11,375 8,679

From 2005 to 2006, increased by 31%.

From 2006 to 2007, increased by 18%.

Cash provided by operating activities is the excess of cash receipts over cash payments from...