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Intermediate Accounting I - Multiple-step Income Statement

1 - Investors have a desire to have as much information as possible on a timely basis. The multiple-step income statement is one way to provide better details to financial statement readers such as investors. Address the following questions regarding the multiple-step income statement:
What is the benefit of the detail presented in the cost of goods sold section of this statement? Do you think this could be confusing to the readers? Why?

What is the difference between selling and administrative expenses? Give two examples of accounts that might go under each of these two categories.

Give two examples of accounts that might be considered other. Do you agree with these being put at the bottom of the income statement? Why or why not?
Justify your answer using appropriate reasoning and examples

2 - You are given a choice to assess the strength of a company by looking at one financial statement. You can either choose the income statement, the balance sheet, or the statement of cash flows. Which statement would you choose and why? What information would you find particularly helpful on this statement in making your analysis? What information might be missing from the statement you chose that would be critical to a thorough analysis?

Solution Preview

1 - I don't think that the detail included with respect to COGS is confusing to readers. I think that it shows readers additional information, which can then be used for investing decisions. When we present the COGS detail, we are able to determine the percentage of COGS to gross sales. This shows investors how and why gross profit may be lower as opposed to not including the information. Any additional detail provided works as a benefit to investors, in which they can use to make informed investing decisions.

Selling expenses are the expenses incurred to market and distribute the product. Administrative expenses don't include any form of direct marketing or sales expenses.

Give two examples of accounts that might ...

Solution Summary

This solution discusses all of the questions presented in this posting, which include the following:

1 - Investors have a desire to have as much information as possible on a timely basis. The multiple-step income statement is one way to provide better details to financial statement readers such as investors. Address the following questions regarding the multiple-step income statement:
What is the benefit of the detail presented in the cost of goods sold section of this statement? Do you think this could be confusing to the readers? Why?

What is the difference between selling and administrative expenses? Give two examples of accounts that might go under each of these two categories.

Give two examples of accounts that might be considered other. Do you agree with these being put at the bottom of the income statement? Why or why not?
Justify your answer using appropriate reasoning and examples

2 - You are given a choice to assess the strength of a company by looking at one financial statement. You can either choose the income statement, the balance sheet, or the statement of cash flows. Which statement would you choose and why? What information would you find particularly helpful on this statement in making your analysis? What information might be missing from the statement you chose that would be critical to a thorough analysis?

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