Problem 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
Problem 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?