• 1 -Financial Reporting Problem

The Procter & Gamble Company (P&G)

The financial statements of p&g are presented in appendix 5b. The company's complete annual report, including the notes to the financial statements, can be accessed at the book's companion website, www.wiley.com/college/kieso.

Instructions:

Refer to P&G's financial statements and the accompanying notes to answer the following questions.

(a) What criteria does P&G use to classify "Cash and cash equivalents" as reported in its balance sheet?

(b) As of June 30, 2011, what balances did P&G have in cash and cash equivalents? What were the major uses of cash during the year?

(c) P&G reports no allowance for doubtful accounts, suggesting that bad debt expense is not material for this company. It is reasonable that a company like P&G would not have material bad debt expense. Explain.

• 2 -Financial Statement Analysis

Case: Occidental Petroleum Corporation

Occidental Petroleum Corporation reported the following information in a recent annual report.

Notes to Consolidate Financial Statements

Cash and cash equivalents. Cash equivalents consist of highly liquid investments. Cash equivalents totaled approximately $661 million and $116 million at current and prior year-ends, respectively.

Trade Receivables. Occidental has agreement to sell, under a revolving sale program, an undivided percentage ownership interest in a designated pool of non-interest-bearing receivables. Under this program, Occidental serves as the collection agent with respect to the receivables sold. An interest in new receivables is sold as collections are made from customers. The balance sold at current year-end was $300 million.

Instructions:

a) What items other than coin and currency may be included in cash?

b) What items may be included in cash equivalents?

c) What are compensating balance arrangements, and how should they be reported in financial statements?

d) What are the possible differences between cash equivalents and short-term (temporary) investments?

e) Assuming that the sale agreement sales meets the criteria for sale accounting, cash proceeds were $345 million, the carrying value of the receivables sold was $36 million, and the fair value of the recourse liability was $15 million, what was the effect on income from sales of receivables?

f) Briefly discuss the impact of the transaction in (e) on Occidental liquidity.

3- Financial Statement Analysis

Case: Noven Pharmaceuticals, Inc

Noven Pharmaceuticals, Inc., headquartered in Miami, Florida, describes itself in a recent annual report as follows.

Noven Pharmaceuticals, Inc

Noven is a place of ideas a company where scientific excellence and state-of-art, manufacturing combine to create new answers to human needs. Our transdermal delivery systems speed drugs painlessly and effortlessly into the bloodstream by means of a simple skin patch. This technology has proven applications in estrogen replacement, but at Noven we are developing a variety of systems incorporating bestselling drugs that fight everything from asthma, anxiety and dental pain to cancer, heart disease and neurological illness. Our research portfolio also includes new technologies, such as iontophoresis, in which drug are delivered through the skin by means of electrical currents, as well as products that could satisfy broad customers needs, such as our anti-microbial mothrinse.

Noven also reported in its annual report that its activities to date have consisted of product development efforts, some of which have been independent and some of which have been completed in conjunction with Rhone-Poulenc Rorer (RPR) and Ciba-Geigy. The revenue so far have consisted of money received from licensing fees, milestone payments (payments made under licensing agreements when certain stages of the development of a certain product have been completed), and interest on its investments. The company expects that it will have significant revenue in the upcoming fiscal year from the launch of its first product, a transdermal estrogen delivery system.

Cash and equivalents $12,070,272

Securities held to maturity 23,445,070

Inventory of supplies 1,264,553

Prepaid and other current assets 825,159

Total current assets $37,605,054

Inventory supplies is recorded at the lower-of-cost (first-in, first-out) or-net realizable value and consists mainly of supplies for research and development.

Instructions:

a) What would you expect the physical flow of goods for a pharmaceutical manufacturer to be most like: FIFO, LIFO, or random (flow of goods does not follow a set pattern)? Explain.

b) What are some of the factors that Noven should consider as it selects an inventory measurement method?

c) Suppose that Noven has $49,000 in an inventory of transdermal estrogen delivery patches. These patches are from an initial production run and will be sold during the coming year. Why do you think that this amount is not shown in a separate inventory account? In which of the accounts shown is the inventory likely to be? At what point will the inventory be transferred to a separated inventory account?

1- Financial Reporting Problem The Procter & Gamble Company (P&G) The financial statements of p&g are presented in appendix 5b. The company's complete annual report, including the notes to the financial statements, can be accessed at the book's companion website, www.wiley.com/college/kieso. Instructions: Refer to P&G's financial statements and the accompanying notes to answer the following questions. (a) What criteria does P&G use to classify "Cash and cash equivalents" as reported in its balance sheet? (b) As of June 30, 2011, what balances did P&G have in cash and cash equivalents? What were the major uses of cash during the year? (c) P&G reports no allowance for doubtful accounts, suggesting that bad debt expense is not material for this company. It is reasonable that a company like P&G would not have material bad debt expense. Explain. 2- Financial Statement Analysis Case: Occidental Petroleum Corporation Occidental Petroleum Corporation reported the following information in a recent annual report. Notes to Consolidate Financial Statements Cash and cash equivalents. Cash equivalents consist of highly liquid investments. Cash equivalents totaled approximately $661 million and $116 million at current and prior year-ends, respectively. Trade Receivables. Occidental has agreement to sell, under a revolving sale program, an undivided percentage ownership interest in a designated pool of non-interest-bearing receivables. Under this program, Occidental serves as the collection agent with respect to the receivables sold. An interest in new receivables is sold as collections are made from customers. The balance sold at current year-end was $300 million. Instructions: a) What items other than coin and currency may be included in \"cash\"? b) What items may be included in \"cash equivalents\"? c) What are compensating balance arrangements, and how should they be reported in financial statements? d) What are the possible differences between cash equivalents and short-term (temporary) investments? e) Assuming that the sale agreement sales meets the criteria for sale accounting, cash proceeds were $345 million, the carrying value of the receivables sold was $36 million, and the fair value of the recourse liability was $15 million, what was the effect on income from sales of receivables? f) Briefly discuss the impact of the transaction in (e) on Occidental liquidity. 3- Financial Statement Analysis Case: Noven Pharmaceuticals, Inc Noven Pharmaceuticals, Inc., headquartered in Miami, Florida, describes itself in a recent annual report as follows. Noven Pharmaceuticals, Inc Noven is a place of ideas - a company where scientific excellence and state-of-art, manufacturing combine to create new answers to human needs. Our transdermal delivery systems speed drugs painlessly and effortlessly into the bloodstream by means of a simple skin patch. This technology has proven applications in estrogen replacement, but at Noven we are developing a variety of systems incorporating bestselling drugs that fight everything from asthma, anxiety and dental pain to cancer, heart disease and neurological illness. Our research portfolio also includes new technologies, such as iontophoresis, in which drug are delivered through the skin by means of electrical currents, as well as products that could satisfy broad customers needs, such as our anti-microbial mothrinse. Noven also reported in its annual report that its activities to date have consisted of product development efforts, some of which have been independent and some of which have been completed in conjunction with Rhone-Poulenc Rorer (RPR) and Ciba-Geigy. The revenue so far have consisted of money received from licensing fees, \"milestone\" payments (payments made under licensing agreements when certain stages of the development of a certain product have been completed), and interest on its investments. The company expects that it will have significant revenue in the upcoming fiscal year from the launch of its first product, a transdermal estrogen delivery system. Cash and equivalents Securities held to maturity Inventory of supplies Prepaid and other current assets Total current assets $12,070,272 23,445,070 1,264,553 825,159 $37,605,054 Inventory supplies is recorded at the lower-of-cost (first-in, first-out) -or-net realizable value and consists mainly of supplies for research and development. Instructions: a) What would you expect the physical flow of goods for a pharmaceutical manufacturer to be most like: FIFO, LIFO, or random (flow of goods does not follow a set pattern)? Explain. b) What are some of the factors that Noven should consider as it selects an inventory measurement method? c) Suppose that Noven has $49,000 in an inventory of transdermal estrogen delivery patches. These patches are from an initial production run and will be sold during the coming year. Why do you think that this amount is not shown in a separate inventory account? In which of the accounts shown is the inventory likely to be? At what point will the inventory be transferred to a separated inventory account