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Introductory Section:

For Procter and Gamble, we are supplied with different consolidated

financial statements that include the statements of earnings, statements of

comprehensive income, balance sheet, statements of shareholders equity,

and statements of cash flow. Depending on the statement we are shown

financial information the 2012, 2013, and 2014. On the balance sheet, we

are given their financial information for the years of 2013 and 2014 and

while we see an increase in their assets there is also increases in their

liabilities. Procter and Gamble had both their long-term and debt owed

within one year increase in value that they owed and while that could

happen, a successful company like them should be able to cover more than

they are allowing to go into debt. Looking at the statement of earnings we

see that there net sales increases from each year they give us (2012, 2013,

2014), but we also see that the cost of goods sold are also increasing as the

years increase. Their dividend per common share also increasing, which

provides evidence that the company is doing well and becoming worth more

money. We are given three years on the statement of comprehensive

income (2012, 2013, 2014) and we see that the company gained around

$10,000,000,000 more in total comprehensive income in 2013 than 2012,

but in 2014 they dropped around $2,000,000,000 in the attainable income in

2014 compared to 2013. According to the statement of shareholders equity

the common shares outstanding decreases from 2011 to 2012 to 2013 to

2104. While it isnt by very much they do decrease in number which could
mean multiple things, but as a successful corporation it only makes sense

that they company must have bought their portion of the company back little

by little over the years through repurchase. On the statement of cash flows

we are given information from the years 2012, 2013, and 2014. On this

statement, we see that Procter and Gambles cash and cash equivalents

have increase in almost double over the three years, starting out at

$4,436,000,000 and reaching to $8,558,000,000. This shows that with their

increases in revenue they have balanced it well with being able to increase

their assets, but that they were also able to balance their debt and liabilities

as well.

Among all this information we also have access to the corporations

financial notes which include so much more information to help understand

what this company is going through. With all this information, we are able to

learn what this corporation is going through when it comes to their finances,

we also have the ability to see them growing in strength. Procter and

Gamble seem to be on an up climb and not coming down at any point soon,

it seems that they plan to stay a power house corporation for a little longer.

Chapter-by-chapter Section

Chapter 2

(a) Reading through the notes to the consolidated financial statements

we can determine that Procter and Gambles revenue recognition

policy is to recognize revenue ones the product, ownership and risk

of loss transfer over to the customer. This can happen on either the
day of shipment or the day of receipt by the customer. When it

comes to trade promotions, such as customer pricing allowances,

merchandising funds and consumer coupons, sales are recorded

net of trade promotion spending generally at the time of sale. The

accruals for these expected payouts are included as accrued

marketing and promotion in the accrued and other liabilities line in

the consolidated balance sheet.


(b)Historical costs include the cost of property, plant and equipment

before the depreciation is taken away from its initial worth.

However, in the notes it tells us that these are recorded at cost

reduced by accumulated depreciation so historical costs are not

found on the balance sheet, but in Note 3 where it tells us the initial

worth of buildings ($8,022,000,000), machinery and equipment

($32,398,000,000), and constructions in progress ($3,114,000,000).

Another example were historical costs is recorded are goodwill and

intangible assets which are both on the balance sheet and in Note2.

Examples of where fair value information is recorded would be

assets held for sale on the balance sheet as well as the section

available-for-sale investment securities. We also find more

information of this in Note 5, here we are given a financial

statement of all the assets recorded at fair value along with

liabilities too.
(c) We can determine that the accounting principle used by Procter and

Gamble are prepared on a basis consistent with those of the


previous year because they use G.A.A.P. to prepare their

statements. This meaning that they have to follow the guidelines

set up by G.A.A.P. each year and would not be able to do it in

another way.
(d)Procter and Gambles accounting policy towards advertising is

included under their unaudited financial summary, as well as their

selling, general, and administrative expenses in the statement of

earnings. The accounting principle that Procter and Gamble uses

towards their accounting for advertising is the expense recognition

principle.

Chapter 3

(a) As seen on the balance sheet Procter and Gambles total assets are

$144,266,000,000 at June 30, 2014. That is an increase from the

year before on June 30, 2013 at the total assets being

$139,263,000,000.
(b)According to the balance sheet Procter and Gamble had a total of

$8,558,000,000 in cash and cash equivalents at June 30, 2014.


(c) Procter and Gambles research and development costs were $2.0

billion in both 2013 and 2014 according to the Selling, General and

Administrative Expense section in Note 1 in the 10K.


(d) As recorded on the consolidated statements of earnings Procter and

Gambles revenues, or net sales, in 2013 was $82,581,000,000.

The revenues in 2014 increased to $83,062,000,000.


(e) Looking through Procter and Gambles notes and financial

statements the accounts that I saw that the accounts that could

cause adjusting entries are deferred income, prepaid expenses and


other current assets, and deprecation. Other accounts that could

affect this are other normal expense accounts and other tax

deferrals.
(f) According to Procter and Gambles consolidated statements of cash

flows their depreciation and amortization expense in 2012 was

$3,204,000,000 where it then dropped to $2,982,000,000 in 2013.

The expense increased again however to $5,947,000,000 in 2014.

Chapter 4

(a) Procter and Gamble use a multiple step income statement. They

probably used this type of income statement simply because it

allows investors to see everything, including one time disasters that

may have caused an abnormal loss. It also allows them to see what

income is made from Procter and Gambles operations in

comparison to their non-operating income.


(b)Procter and Gambles primary revenue source comes from their

beauty and grooming supplies. I found this in their Goodwill and

Intangible Assets found in Note 2. Both those outputs together

make up just over half of their goodwill.


(c) The gross profit for 2012 comes to $40,595,000,000 and we find

this by taking the net sales ($82,006,000,000) from the statement

of earnings and subtract the cost of products sold

($41,411,000,000) which is also located on the statement of

earnings. When you do the same thing for 2013 ($82,581,000,000-

$41,391,000,000) you get a gross profit of $41,190,000,000 and for

2014 ($83,062,000,000-$42,460,000,000) the gross profit is


$40,602,000,000. The gross profit for 2014 decreased since the net

sales decreased from 2013 and the cost of products sold increased

causing the gross profit to be less in value.


(d)Procter and Gamble makes the distinction between operating and

nonoperating revenue to show the differences in income of revenue.

Not all income comes from the same source so splitting it up allows

you to how the company in both aspects and where the majority of

their income comes from. The operations show the revenue of their

principle operations while the nonoperating report revenues of

secondary activities of the company.


(e) In Procter and Gambles Financial Summary covering from years

2009 to 2014 they include the ratios: net earnings margin from

continuing operations, basic net earnings per common share,

diluted net earnings per common share and dividends per common

share.

Chapter 5

(a) Procter and Gamble chose to adopt the report form of a balance

statement, as they have each of their section one above the other

on the same page. They could have adopted the account form

which lists assets by sections on the left sides and the liabilities and

stockholders equity by sections on the right side.


(b)The various techniques of disclosure Procter and Gamble may have

used to disclose additional pertinent financial information include

parenthetical explanations, notes, cross-reference and contra items,

and supporting schedules. However, Procter and Gamble uses a


mixture of parenthetical explanations, notes and supporting

schedules.
(c) Procter and Gambles investments are recorded on the balance

sheet as current assets. When it comes to valuation they report

their investments in Note 1 as readily available marketable debt and

equity securities. These are reported at fair value. On June 30,

2014, the working capital was $2,109,000,000 and on June 30, 2013

it was $6,047,000,000.
(d)In 2014 Procter and Gambles cash flows from its operating was

$13,958,000,000, investing was -$4,107,000,000, and financing was

-$7,279,000,000. All the trends in net cash provided by operating

activities over the period 2012 to 2014 were positive. The change in

accounts payable and in accrued and other liabilities is added to net

income by operations because when there is an increase in the

account balance that is considered a cash flow.


(e) Procter and Gambles current cash debt coverage is 0.414 which

means they can only cover 41.4% of their current liabilities. You get

this number by dividing the net cash (13,958) by the current

liabilities (33,726). To get the cash debt coverage we take the net

cash operating activities (13,958) and divide that by total liabilities

(74,290) to get 0.188. This means you are only able to cover 18.8%

of the total liabilities. The free cash flow is equal to the net cash

operating activities (13,958) minus capital expenditures (3,848)

minus dividends (6,911) or $3,199. This is the amount you have left
over at the end and with a positive number it shows that Procter

and Gamble is able to cover their financial requirements.

Chapter 7

(a) Procter and Gambles cash and cash equivalents reported on their

balance sheet follow the criteria of highly liquid investments with

remaining stated maturities of three months or less when purchased

are then considered cash equivalents and recorded at cost, as

stated in the Cash Equivalents section in the Notes.


(b)As recorded on the balance sheet Procter and Gamble had a total of

$8,558,000,000 in cash and cash equivalents. The company

seemed spent a good amount of money on property plant and

equipment, covered prepaid expenses and other current assets, and

they also spent money on materials and supplies for their

inventories. This information comes from the differences in values

on the balance sheets.


(c) Procter and Gamble not reporting an allowance for doubtful

accounts, thus suggesting that bad debt is not material for this

company. This is reasonable for a well-established company like

Procter and Gamble since they are one of the biggest corporations

in the world. They have a well-established name and a well-

established customer base and while they have completion in the

industry its not a very large influence on their success. With the

strong consumer base Procter and Gamble doesnt have to worry

that much when it comes to not breaking at least even. They sell
their products out to mostly stores who sell consumer goods. The

corporation makes a good amount of money from this due to the

fact they never have to worry about not being paid back unless the

company they are selling to goes bankrupt.

Summary:

Throughout this project I found a few things very interesting and had

issues with more than I would like to admit. To start I found it interesting that

Procter and Gamble did not have an allowance for doubtful accounts section

even though they are a successful corporation that sends their products to

other distributers all over the world. I also found it odd that they didnt have

any assets held for sale in 2013, but then had $2,849,000,000 held in 2014.

I also found it easy to navigate the financial notes and that surprised me, as I

thought I would have struggled with that, but they were set up in a way that

was easy to follow. On the same not however, while it was easy to navigate

things werent always in the place that I thought they would be and that

threw me off a few times. I also struggled with a few of the questions, but

ended up doing okay after looking it all up in previous chapters, some things

just took more time than they should have.

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