Financial Accounting: In an Economic Context

BRIEF EXERCISES

REAL DATA

BE81

Short-term investments

The following table was taken from the 2008 annual report of Merck & Company, a major U.S. pharmaceutical company (dollars in millions).

REQUIRED:

a. What is comprehensive income and how does it differ from net income?

b. This table indicates that Merck carries certain kinds of investments on its balance sheet. What are they, and what happened to the values of those investments in 2008, 2007, and 2006?

REAL DATA

BE8-2

Available-for-sale securities

On the statement of comprehensive income within its 2008 annual report, Bristol-Myers Squibb included a ($37) million line item behind “available-for-sale securities.” During 2008 the company maintained a portfolio of marketable securities in the current asset section of the balance sheet of nearly $289 million.

REQUIRED:

Explain the event that led to the ($37) million amount listed on the statement of comprehensive income, and where else on the financial statements this amount would be reflected.

REAL DATA

BE8-3

Equity method, the income statement, and statement of cash flows

PepsiCo, Inc. reported “bottling equity income” of $374, $560, and $553 on its income statements for 2008, 2007, and 2006, respectively (dollars in millions). The computation of net cash from operating activities on the company's statement of cash flows includes “bottling equity income, net of dividends” of ($202), ...