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Income
Income Statement
Statement and
and Related
Related Information
Information
Income
Statement
Usefulness
Limitations
Quality of
Earnings
Format of the
Income
Statement
Elements
Single-step
Multiple-step
Condensed
income statements
Reporting
Irregular Items
Discontinued
operations
Extraordinary
items
Unusual gains and
losses
Changes in
accounting
principles
Changes in
estimates
Corrections of
errors
Special
Reporting Issues
Intraperiod tax
allocation
Earnings per share
Retained earnings
statement
Comprehensive
income
Income Statement
Usefulness
Income Statement
Limitations
Income Statement
Quality of Earnings
Companies have incentives to manage income to meet or
beat Wall Street expectations, so that
Sales
Dividend revenue
Fee revenue
Rent revenue
Interest revenue
6
LO 1 Understand the uses and limitations of an income statement.
Rent expense
Depreciation
expense
Salary expense
Interest expense
7
LO 1 Understand the uses and limitations of an income statement.
settlement of liabilities,
write-offs of assets.
8
LO 1 Understand the uses and limitations of an income statement.
Single-Step Format
Single-Step Income
Statement
Revenues
Expenses
SingleStep
Net Income
No distinction between
Operating and Non-operating
categories.
9
LO 2 Prepare a single-step income statement.
Format
10
LO 2 Prepare a single-step income statement.
11
LO 3 Prepare a multiple-step income statement.
Multiple-Step Format
Intermediate Components of the Income Statement
1. Operating section
2. Nonoperating section
3. Income tax
4. Discontinued operations
5. Extraordinary items
6. Earnings per share
12
LO 3 Prepare a multiple-step income statement.
Multiple-Step Format
The presentation
divides information
into major sections.
1. Operating Section
2. Nonoperating
Section
3. Income tax
13
LO 3 Prepare a multiple-step income statement.
Multiple-Step Format
14
15
LO 4 Explain how to report irregular items.
$54,496,000
18
LO 4 Explain how to report irregular items.
Previously labeled as
Net Income.
Moved to
19 4
LO
Occur Infrequently
$55,000,000
539,000
$54,461,000
Previously labeled as
Net Income.
Moved to
22 4
LO
23 4
LO
Discontinued
Operations
Extraordinary Items
24 4
LO
Write-downs of inventories
Illustration 4-9
Income Statement
Presentation of Unusual
Charges
26
Retrospective adjustment.
Examples include:
Illustration 4-10
Calculation of a Change in
Accounting Principle
Illustration 4-11
Income Statement
Presentation of a Change
in Accounting Principle
(Based on 30% tax rate)
28
LO 4 Explain how to report irregular items.
Examples include:
Inventory obsolescence.
LO 4
29
Explain how to report irregular items.
Questions:
30
LO 4 Explain how to report irregular items.
After 7 years
First,
First,establish
establishNBV
NBV
at
atdate
dateof
ofchange
changein
in
estimate.
estimate.
$510,000
- 10,000
500,000
10 years
$ 50,000 x 7 years = $350,000
$510,000
350,000
$160,000
31
$160,000
5,000
155,000
8 years
$ 19,375
After 7 years
Depreciation
Depreciation
Expense
Expensecalculation
calculation
for
for2012.
2012.
19,375
32
LO 4 Explain how to report irregular items.
Result from:
mathematical mistakes.
100,000
34
LO 4 Explain how to report irregular items.
35
LO 5 Explain intraperiod tax allocation.
36
LO 5 Explain intraperiod tax allocation.
37
LO 5 Explain intraperiod tax allocation.
Calculation of
Total Tax
$24,000
(135)
(61)
(231)
$23,573
38
LO 5 Explain intraperiod tax allocation.
190,000
$250,000
40
LO 6 Identify where to report earnings per share information.
Illustration 4-17
Divide by
weightedaverage
shares
outstanding
EPS
41 6
LO
Decrease
Net income
Net loss
Change in accounting
principle
Dividends
Change in accounting
principles
Error corrections
Error corrections
42
LO 7 Prepare a retained earnings statement.
Before issuing the report for the year ended December 31, 2012, you
discover a $50,000 error (net of tax) that caused 2011 inventory to be
overstated (overstated inventory caused COGS to be lower and thus net
income to be higher in 2011). Would this discovery have any impact on
the reporting of the Statement of Retained Earnings for 2012?
43
LO 7 Prepare a retained earnings statement.
44
LO 7 Prepare a retained earnings statement.
45
LO 7 Prepare a retained earnings statement.
all gains and losses that bypass net income but affect
stockholders equity.
46
LO 8 Explain how to report other comprehensive income.
Other Comprehensive
Income
Plus others
Reported in Stockholders
Equity
47
48
LO 8 Explain how to report other comprehensive income.
Comprehensive
Income
Second income
statement
49
LO 8
50
LO 8
51
LO 8 Explain how to report other comprehensive income.
Illustration 4-21
Presentation of
Accumulated Other
Comprehensive
Income in the
Balance Sheet
RELEVANT FACTS
RELEVANT FACTS
IFRS does not define key measures like income from operations.
SEC regulations define many key measures and provide
requirements and limitations on companies reporting nonGAAP/IFRS information.
RELEVANT FACTS
Both GAAP and IFRS have items that are recognized in equity as
part of comprehensive income but do not affect net income. GAAP
provides three possible formats for presenting this information: single
income statement, combined statement of comprehensive income, in
the statement of stockholders equity. Most companies that follow
GAAP present this information in the statement of stockholders
equity. IFRS allows a separate statement of comprehensive income
or a combined statement.
Summary
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