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Business Accounting ACCOUNTING PRINCIPLES

(a) (1) Income Statement: Income Statement is prepared by all the companies by enumerating all the expenses and revenues in the statement to calculate the resulting difference of Net Profit or Net Loss. Gross Profit Rate: Gross Profit Rate is the ratio that determines the profitability of business as percentage of its net sales. Gross profit ratio shall be calculated as follows: Gross Profit Rate = Gross Profit Net Sales × 100 Operating Income: Operating Income is the income arising after deducting the operating expenses but before the interest and tax. Operating Income = Gross Profit − Operating Expenses To determine: On basis of financial statements of 2013 of each company Gross profit Explanation: Gross profit for 2013 P Company The amount of gross profit of P Company for 2013 is $35,172 million (Refer Appendix B – consolidated statements of operations). C Company The amount of gross profit of C Company for 2013 is $28,433 million (Refer Appendix C – consolidated statements of operations). (2) To determine: Gross profit rate Explanation: Gross profit rate for 2013. Formula to calculate gross profit rate: Gross Profit Rate = Gross Profit Net Sales × 100 P Company Refer Appendix B for info, The gross profit in 2013 is $35,172 million. The amount of net sales in 2013 is $66,415 million. Substitute $35,172 million for gross profit, and $66,415 million for net sales in the above formula, Gross Profit Rate = $ 35 , 172 million $ 66 , 415 million × 100 = 53 % Thus, gross profit rate of P Company in 2013 is 53%. Company C: Refer Appendix C for info, The gross profit in 2013 is $28,433 million. The amount of net sales in 2013 is $46,854 million. Substitute $28,433 million for gross profit, and $46,854 million for net sales in the above formula, Gross Profit Rate = $ 28 , 433 million $ 46 , 854 million × 100 = 60.7 % Thus, gross profit rate of C Company in 2013 is 60.7%. (3) To determine: Operating income Explanation: Operating Income for 2013 P Company The amount of operating income of P Company is $9,705 million (Refer Appendix B – consolidated statement of income). Company C: The amount of operating income of C Company is $10,228 million (Refer Appendix C – consolidated statement of income). (4) To determine: Percentage change in operating income from 2012 and 2013. Explanation: Percentage change in operating income from 2012 to 2013 Percentage Change in Operating Income = [ ( Operating Income 2013 − Operating Income 2012 ) ( Operating Income 2012 ) × 100 ] Company P: Refer Appendix B for info, The amount of operating income in 2012 is $9,112 million. The amount of operating income in 2013 is $9,705 million. Substitute $9,705 million for operating income in 2013, and $9,112 millionfor operating income in 2012 in the above formula, Percentage Change in Operating Income = $ 9 , 705 million − $ 9 , 112 million $ 9 , 112 million × 100 = $ 593 million $ 9 , 112 million × 100 = 6.5 % Thus, percentage change in operating income (increase) of P Company from 2012 to 2013 is 6.5%. Company C: Refer Appendix C for info, The amount of operating income in 2012 is $10,779 million. The amount of operating income in 2013 is $10,228 million. Substitute $$10,228 million for operating income in 2013, and $10,779 million for operating income in 2013 in the above formula, Percentage Change in Operating Income = $ 10 , 228 million − $ 10 , 779 million $ 10 , 779 million × 100 = ( $ 551 ) million $ 10 , 779 million × 100 = 5.1 % Thus, percentage change in operating income (decrease) of C Company from 2012 to 2013 is 5.1%. Conclusion: The gross profit of P Company is $35,172 million, and of C Company is $28,433 million. The gross profit rate of P Company is 53%, and of C Company is 60.7%. The amount of operating income of P Company is $9,705 million, and of C Company is $10,228 million. The percentage change in operating income (increase) of P Company from 2012 to 2013 is 6.5%, and of C Company is 5.1% (decrease). (b) To determine: Comparison of profitability of both companies. Explanation: Conclusion about the relative profitability of Company P and Company C: The Gross Profit for the year 2013 of P Company is more than that of C Company. However, the gross profit rate of C Company is more than that of P Company. This implies that the profitability as compared to the sales value of C Company is better than P Company. The Operating Income for 2013 of C Company is higher than that of P Company, which implies that the operating expenses of C Company are less than that of P Company. Percentage change in Operating income from 2012 to 2013 is negative for C Company, which implies that the operating incomes in 2013 have decreased from the previous year. So, the percentage change in operating income from 2012 to 2013 of P Company is more than that of C Company. Conclusion: The C Company indicates more profitability than P Company in 2013.

(a) (1) Income Statement: Income Statement is prepared by all the companies by enumerating all the expenses and revenues in the statement to calculate the resulting difference of Net Profit or Net Loss. Gross Profit Rate: Gross Profit Rate is the ratio that determines the profitability of business as percentage of its net sales. Gross profit ratio shall be calculated as follows: Gross Profit Rate = Gross Profit Net Sales × 100 Operating Income: Operating Income is the income arising after deducting the operating expenses but before the interest and tax. Operating Income = Gross Profit − Operating Expenses To determine: On basis of financial statements of 2013 of each company Gross profit Explanation: Gross profit for 2013 P Company The amount of gross profit of P Company for 2013 is $35,172 million (Refer Appendix B – consolidated statements of operations). C Company The amount of gross profit of C Company for 2013 is $28,433 million (Refer Appendix C – consolidated statements of operations). (2) To determine: Gross profit rate Explanation: Gross profit rate for 2013. Formula to calculate gross profit rate: Gross Profit Rate = Gross Profit Net Sales × 100 P Company Refer Appendix B for info, The gross profit in 2013 is $35,172 million. The amount of net sales in 2013 is $66,415 million. Substitute $35,172 million for gross profit, and $66,415 million for net sales in the above formula, Gross Profit Rate = $ 35 , 172 million $ 66 , 415 million × 100 = 53 % Thus, gross profit rate of P Company in 2013 is 53%. Company C: Refer Appendix C for info, The gross profit in 2013 is $28,433 million. The amount of net sales in 2013 is $46,854 million. Substitute $28,433 million for gross profit, and $46,854 million for net sales in the above formula, Gross Profit Rate = $ 28 , 433 million $ 46 , 854 million × 100 = 60.7 % Thus, gross profit rate of C Company in 2013 is 60.7%. (3) To determine: Operating income Explanation: Operating Income for 2013 P Company The amount of operating income of P Company is $9,705 million (Refer Appendix B – consolidated statement of income). Company C: The amount of operating income of C Company is $10,228 million (Refer Appendix C – consolidated statement of income). (4) To determine: Percentage change in operating income from 2012 and 2013. Explanation: Percentage change in operating income from 2012 to 2013 Percentage Change in Operating Income = [ ( Operating Income 2013 − Operating Income 2012 ) ( Operating Income 2012 ) × 100 ] Company P: Refer Appendix B for info, The amount of operating income in 2012 is $9,112 million. The amount of operating income in 2013 is $9,705 million. Substitute $9,705 million for operating income in 2013, and $9,112 millionfor operating income in 2012 in the above formula, Percentage Change in Operating Income = $ 9 , 705 million − $ 9 , 112 million $ 9 , 112 million × 100 = $ 593 million $ 9 , 112 million × 100 = 6.5 % Thus, percentage change in operating income (increase) of P Company from 2012 to 2013 is 6.5%. Company C: Refer Appendix C for info, The amount of operating income in 2012 is $10,779 million. The amount of operating income in 2013 is $10,228 million. Substitute $$10,228 million for operating income in 2013, and $10,779 million for operating income in 2013 in the above formula, Percentage Change in Operating Income = $ 10 , 228 million − $ 10 , 779 million $ 10 , 779 million × 100 = ( $ 551 ) million $ 10 , 779 million × 100 = 5.1 % Thus, percentage change in operating income (decrease) of C Company from 2012 to 2013 is 5.1%. Conclusion: The gross profit of P Company is $35,172 million, and of C Company is $28,433 million. The gross profit rate of P Company is 53%, and of C Company is 60.7%. The amount of operating income of P Company is $9,705 million, and of C Company is $10,228 million. The percentage change in operating income (increase) of P Company from 2012 to 2013 is 6.5%, and of C Company is 5.1% (decrease). (b) To determine: Comparison of profitability of both companies. Explanation: Conclusion about the relative profitability of Company P and Company C: The Gross Profit for the year 2013 of P Company is more than that of C Company. However, the gross profit rate of C Company is more than that of P Company. This implies that the profitability as compared to the sales value of C Company is better than P Company. The Operating Income for 2013 of C Company is higher than that of P Company, which implies that the operating expenses of C Company are less than that of P Company. Percentage change in Operating income from 2012 to 2013 is negative for C Company, which implies that the operating incomes in 2013 have decreased from the previous year. So, the percentage change in operating income from 2012 to 2013 of P Company is more than that of C Company. Conclusion: The C Company indicates more profitability than P Company in 2013.

ACCOUNTING PRINCIPLES

ACCOUNTING PRINCIPLES

12th Edition

ISBN: 9781119145257

Author: Weygandt

Publisher: JOHN WILEY+SONS INC.CUSTOM

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