Additional Information: LIFO liquidation gain before tax for Year 11 is $28.6, for Year 10 is $42.3, for Year 9 is $47.

QUESTION:

a. Recast Quaker Oats income statements through Income from Continuing Operations for Years 11, 10, and 9 (estimate federal income tax at 34%).

b. Interpret trends revealed by the recasted income statements.

Refer to the financial statements of Quaker Oats Quaker Oats Company Company in Problem 9-6 along with the following footnotes. SUPPLEMENTARY EXPENSE DATA ($ millions) Year 11 Year 10 $ 282.8 912.5 $1,195.3 Year 9 $ 256.5 886.2 $1,142.7 Advertising, media, and production ................ $ 277.5 Merchandising ............................... 1,129.9 Total advertising and merchandising ........... $1,407.4 Maintenance and repairs ........ ............ $ 96.1 Depreciation expense ........ ........ $ 125.2 Research and development ..................... $ 44.3 $ 96.6 $ 103.5 $ 43.3 $ $ $ 93.8 94.5 39.3 INTEREST (INCOME) EXPENSE ($ millions) Year 11 Year 10 Year 9 Total interest expense............................... $101.9 Total interest income ......... Net interest allocated to discontinued operations ...... (6.7) ....... (9.0) $120.2 (11.0) (7.4) $ 75.9 (12.4) (7.1) Year 11 Year 10 Year 9 % of Pretax Income % of Pretax Income % of Pretax Income ($ millions) Amount Amount Amount 34.0% $130.0 34.0% $81.3 34.0% 16.7 11.9 3.1 3.2 Tax provision based on the federal statutory rate .... .... $139.9 State and local income taxes, net of federal income tax benefit. ........ ANC benefit Repatriation of foreign earnings .. Non-U.S. tax rate differential..... - 8.2 U.S. tax credits ............... Miscellaneous itemsnet ...... 6.8 Actual tax provision ............. $175.7 7.7 (1.7) (.7) 4.8 9.8 1.9) 1.3 2.5 (2.1) 8.8 (.2) 6.8 - (.1) 1.6 42.7% (2.9) $153.5 (8) 40.1% (.7) (3.1) $90.2 3.7 1.3) (1.3) 37.7% OTHER (INCOME) EXPENSE ($ millions) Year 11 Year 10 Year 9 $25.7 22.2 $ 14.8 18.2 Foreign exchange (gains) lossesnet ............... $(5.1) Amortization of intangibles. ...... 22.4 Losses (gains) from plant closings and operations sold or to be soldnet........ 8.8 Miscellaneousnet .... 6.5 Net other expense ........ ........ $32.6 (23.1) (8.4) $ 16.4 119.4 (2.8) $149.6 Refer to the financial statements of Quaker Oats Quaker Oats Company Company in Problem 9-6 along with the following footnotes. SUPPLEMENTARY EXPENSE DATA ($ millions) Year 11 Year 10 $ 282.8 912.5 $1,195.3 Year 9 $ 256.5 886.2 $1,142.7 Advertising, media, and production ................ $ 277.5 Merchandising ............................... 1,129.9 Total advertising and merchandising ........... $1,407.4 Maintenance and repairs ........ ............ $ 96.1 Depreciation expense ........ ........ $ 125.2 Research and development ..................... $ 44.3 $ 96.6 $ 103.5 $ 43.3 $ $ $ 93.8 94.5 39.3 INTEREST (INCOME) EXPENSE ($ millions) Year 11 Year 10 Year 9 Total interest expense............................... $101.9 Total interest income ......... Net interest allocated to discontinued operations ...... (6.7) ....... (9.0) $120.2 (11.0) (7.4) $ 75.9 (12.4) (7.1) Year 11 Year 10 Year 9 % of Pretax Income % of Pretax Income % of Pretax Income ($ millions) Amount Amount Amount 34.0% $130.0 34.0% $81.3 34.0% 16.7 11.9 3.1 3.2 Tax provision based on the federal statutory rate .... .... $139.9 State and local income taxes, net of federal income tax benefit. ........ ANC benefit Repatriation of foreign earnings .. Non-U.S. tax rate differential..... - 8.2 U.S. tax credits ............... Miscellaneous itemsnet ...... 6.8 Actual tax provision ............. $175.7 7.7 (1.7) (.7) 4.8 9.8 1.9) 1.3 2.5 (2.1) 8.8 (.2) 6.8 - (.1) 1.6 42.7% (2.9) $153.5 (8) 40.1% (.7) (3.1) $90.2 3.7 1.3) (1.3) 37.7% OTHER (INCOME) EXPENSE ($ millions) Year 11 Year 10 Year 9 $25.7 22.2 $ 14.8 18.2 Foreign exchange (gains) lossesnet ............... $(5.1) Amortization of intangibles. ...... 22.4 Losses (gains) from plant closings and operations sold or to be soldnet........ 8.8 Miscellaneousnet .... 6.5 Net other expense ........ ........ $32.6 (23.1) (8.4) $ 16.4 119.4 (2.8) $149.6