ACCOUNTING 220-Week 3–The Income Statement and Profitability

SEC 10KWeek 3 – The Income Statement and ProfitabilityThe notes to the financial statements are integral part of the company’s financial report. Read theNotes to the Financial Statements (FS) for your SEC 10-K company. These “notes” are displayedafter the financial statements.1. Note 1 includes accounting information. What is the fiscal year for your SEC 10-KCompany? This may be June 30 each year, or it may be the Sunday closest to the last dayof January, or some other description.2. Inventory: How is Inventory described for your SEC 10-K company? LIFO, FIFO, and/oraverage cost? Relate your answer to topics in our course.3. Income Statement: Is it a single-step or multi-step income statement? A multi-stepstatement (also called a classified income statement) reports levels of income (grossprofit, operating income, net income). Define gross profit, operating income, and netincome. Why are the levels of income important to financial statement users? A singlestep statement reports revenues minus expenses and doesn’t highlight gross profit. Grossprofit must be calculated by the user.4. Summarize management’s discussion of the company’s performance in the MD&Asection of the annual report.5. Calculate the Gross Profit and Gross Profit Percentage (Gross Profit/Sales) for this yearand last year, creating a small table, such as the following: Net SalesCost of Goods SoldGross ProfitGross Profit Percentage This Year$1,20080040033% Last Year$1,4001,20020014% In the example above, sales decreased, gross profit increased, and the gross profit percentageincreased. Therefore, sales are more profitable. The company made 33 cents of gross profit onevery dollar of sales this year, but only 14 cents of gross profit on every dollar of sales last year.Sales decreased, but sales are actually generating more profit overall, both as an absolute dollarvalue and as a percentage.Be sure to use good form – $ signs for the first number in a column and use commas to separatethousands. You may drop off zeros similar to the way your company does in its financialstatements but be sure to indicate that the numbers are in thousands (three zeros omitted) ormillions (six zeros omitted).