西方财务会计培训教材

Click to edit Master title style,Click to edit Master text styles,Second Level,Third Level,Fourth Level,Fifth Level,Chapter 4-,*,C H A P T E R,4,INCOME STATEMENT AND RELATED INFORMATION,Intermediate Accounting,13th Edition,Kieso, Weygandt, and Warfield,Understand the uses and limitations of an income statement.,Prepare a single-step income statement.,Prepare a multiple-step income statement.,Explain how to report irregular items.,Explain intraperiod tax allocation.,Identify where to report earnings per share information.,Prepare a retained earnings statement.,Explain how to report other comprehensive income.,Learning Objectives,Elements,Single-step,Multiple-step,Condensed income statements,Income Statement,Format of the Income Statement,Reporting Irregular Items,Special Reporting Issues,Usefulness,Limitations,Quality of Earnings,Discontinued operations,Extraordinary items,Unusual gains and losses,Changes in accounting principles,Changes in estimates,Corrections of errors,Intraperiod tax allocation,Earnings per share,Retained earnings statement,Comprehensive income,Income Statement and Related Information,Evaluate past performance.,Income Statement,LO 1 Understand the uses and limitations of an income statement.,Help assess the risk or uncertainty of achieving future cash flows.,Predicting future performance.,Usefulness,Companies omit items that cannot be measured reliably.,Income Statement,Limitations,LO 1 Understand the uses and limitations of an income statement.,Income measurement involves judgment.,Income is affected by the accounting methods employed.,Companies have incentives to,manage income,to meet or beat Wall Street expectations, so that,market price of stock increases and,value of stock options increase.,Income Statement,LO 1 Understand the uses and limitations of an income statement.,Quality of earnings,is reduced if earnings management results in information that is less useful for predicting future earnings and cash flows.,Quality of Earnings,Format of the Income Statement,LO 1 Understand the uses and limitations of an income statement.,Revenues, Inflows or other enhancements of assets or settlements of its liabilities that constitute the entitys ongoing major or central operations.,Sales,Fee revenue,Interest revenue,Dividend revenue,Rent revenue,Examples of Revenue Accounts,Elements of the Income Statement,Format of the Income Statement,LO 1 Understand the uses and limitations of an income statement.,Expenses, Outflows or other using-up of assets or incurrences of liabilities that constitute the entitys ongoing major or central operations.,Cost of goods sold,Depreciation expense,Interest expense,Rent expense,Salary expense,Examples of Expense Accounts,Elements of the Income Statement,Format of the Income Statement,LO 1 Understand the uses and limitations of an income statement.,Gains, Increases in equity (net assets) from peripheral or incidental transactions.,Losses,- Decreases in equity (net assets) from peripheral or incidental transactions.,Gains and losses can result from,sale of investments or plant assets,settlement of liabilities,write-offs of assets.,Elements of the Income Statement,Single-Step Format,LO 2 Prepare a single-step income statement.,The single-step statement consists of just two groupings:,Revenues,Expenses,Net Income,Single- Step,No distinction between,Operating,and,Non-operating,categories.,Single-Step Format,LO 2 Prepare a single-step income statement.,E4-4:,Prepare an income statement from the data below.,Solution on notes page,The single-step income statement emphasizes,a. the gross profit figure.,b. total revenues and total expenses.,c. extraordinary items more than it is emphasized in the multiple-step income statement.,d. the various components of income from continuing operations.,Review,Single-Step Format,LO 2 Prepare a single-step income statement.,Separates operating transactions from nonoperating transactions.,Matches costs and expenses with related revenues.,Highlights certain intermediate components of income that analysts use.,LO 3 Prepare a multiple-step income statement.,Multiple-Step Format,Background,Operating section,Nonoperating section,Income tax,Discontinued operations,Extraordinary items,Earnings per share,LO 3 Prepare a multiple-step income statement.,Multiple-Step Format,Income Statement Sections,Multiple-Step Format,LO 3 Prepare a multiple-step income statement.,The,presentation divides information into major sections.,1. Operating Section,2. Nonoperating Section,3. Income tax,Multiple-Step Format,Illustration (E4-4):,Prepare an income statement from the data below.,Solution on notes page,Review,A separation of operating and non operating activities of a company exists in,a. both a multiple-step and single-step income statement.,b. a multiple-step but not a single-step income statement.,c. a single-step but not a multiple-step income statement.,d. neither a single-step nor a multiple-step income statement.,Multiple-Step Format,LO 3 Prepare a multiple-step income statement.,Companies are required to report irregular items in the financial statements so users can determine the long-run earning power of the company.,LO 4 Explain how to report irregular items.,Reporting Irregular Items,Illustration 4-5,Number of Irregular Items Reported in a Recent Year by 600 Large Companies,Irregular items,fall into six categories,Discontinued operations.,Extraordinary items.,Unusual gains and losses.,Changes in accounting principle.,Changes in estimates.,Corrections of errors.,Reporting Irregular Items,LO 4 Explain how to report irregular items.,Discontinued Operations,occurs when,(a),company eliminates the,results of operations and,cash flows of a component,.,there is no significant continuing involvement in that component.,Amount reported,“net of tax.”,Reporting Irregular Items,LO 4 Explain how to report irregular items.,Illustration:,KC Corporation had after tax income from continuing operations of $55,000,000 in 2008. During 2008, it disposed of its restaurant division at a pretax loss of $270,000. Prior to disposal, the division operated at a pretax loss of $450,000 in 2008. Assume a tax rate of 30%. Prepare a partial income statement for KC.,Reporting Discontinued Operations,Income from continuing operations$55,000,000,Discontinued operations:,Loss from operations, net of $135,000 tax315,000,Loss on disposal, net of $81,000 tax189,000,Net income$54,496,000,Total loss on discontinued operations504,000,LO 4 Explain how to report irregular items.,Reporting Discontinued Operations,Discontinued Operations are reported after “Income from continuing operations.”,Previously labeled as “Net Income”.,Moved to,LO 4 Explain how to report irregular items.,Extraordinary items,are nonrecurring material items that differ significantly from a companys typical business activities.,Extraordinary Item must be both of an,Unusual Nature and,Occur Infrequently,Company must consider the,environment,in which it operates.,Amount reported,“net of tax.”,Reporting Irregular Items,LO 4 Explain how to report irregular items.,Are these items Extraordinary?,(a) A large portion of a tobacco manufacturers crops are destroyed by a hail storm. Severe damage from hail storms in the locality where the manufacturer grows tobacco is rare.,(b) A citrus growers Florida crop is damaged by frost.,(c) A company sells a block of common stock of a publicly traded company. The block of shares, which represents less than 10% of the publicly-held company, is the only security investment the company has ever owned.,YES,Reporting Extraordinary Items,NO,YES,LO 4 Explain how to report irregular items.,Are these items Extraordinary?,(d) A large diversified company sells a block of shares from its portfolio of securities which it has acquired for investment purposes. This is the first sale from its portfolio of securities.,(e) An earthquake destroys one of the oil refineries owned by a large multi-national oil company. Earthquakes are rare in this geographical location.,(f) A company experiences a material loss in the repurchase of a large bond issue that has been outstanding for 3 years. The company regularly repurchases bonds of this nature.,NO,Reporting Extraordinary Items,YES,NO,LO 4 Explain how to report irregular items.,Illustration:,KC Corporation had after tax income from continuing operations of $55,000,000 in 2007. In addition, it suffered an unusual and infrequent pretax loss of $770,000 from a volcano eruption. The corporations tax rate is 30%. Prepare a partial income statement for KC Corporation beginning with income from continuing operations.,Income from continuing operations$55,000,000,Extraordinary loss, net of $231,000 tax539,000,Net income$54,461,000,Reporting Extraordinary Items,($770,000 x 30% = $231,000 tax),LO 4 Explain how to report irregular items.,Extraordinary Items are reported after “Income from continuing operations.”,Previously labeled as “Net Income”.,Reporting Extraordinary Items,Moved to,LO 4 Explain how to report irregular items.,Reporting Irregular Items,Reporting when both Discontinued Operations and Extraordinary Items are present.,Discontinued Operations,Extraordinary Item,LO 4 Explain how to report irregular items.,Irregular transactions such as discontinued operations and extraordinary items should be reported separately in,a. both a single-step and multiple-step income statement.,b. a single-step income statement only.,c. a multiple-step income statement only.,d. neither a single-step nor a multiple-step income statement.,Review,Reporting Irregular Items,LO 4 Explain how to report irregular items.,Unusual Gains and Losses,Material items that are,unusual,or,infrequent,but not both, should be reported in a separate section just above “Income from continuing operations before income taxes.”,Examples can include:,Write-downs of inventories,Foreign exchange transaction gains and losses,The Board prohibits net-of-tax treatment for these items.,Reporting Irregular Items,LO 4 Explain how to report irregular items.,Unusual Gains and Losses,Reporting Irregular Items,LO 4 Explain how to report irregular items.,Illustration 4-9,Income Statement Presentation of Unusual Charges,Changes in Accounting Principles,Retrospective adjustment,Cumulative effect adjustment to beginning retained earnings,Approach preserves comparability,Examples include:,change from FIFO to average cost,change from the percentage-of-completion to the completed-contract method,Reporting Irregular Items,LO 4 Explain how to report irregular items.,Reporting Irregular Items,LO 4 Explain how to report irregular items.,Change in Accounting Principle:,Gaubert Inc. decided in March 2010 to change from FIFO to weighted-average inventory pricing. Gauberts income before taxes, using the new weighted-average method in 2010, is $30,000.,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),Pretax Income Data,Solution on notes page,Changes in Estimate,Accounted for in the period of change and future periods,Not handled retrospectively,Not considered errors or extraordinary items,Examples include:,Useful lives and salvage values of depreciable assets,Allowance for uncollectible receivables,Inventory obsolescence,Reporting Irregular Items,LO 4 Explain how to report irregular items.,Change in Estimate:,Arcadia HS, purchased equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time. Depreciation has been recorded for 7 years on a straight-line basis. In 2010 (year 8), it is determined that the total estimated life should be 15 years with a salvage value of $5,000 at the end of that time.,Questions:,What is the journal entry to correct the prior years depreciation?,Calculate the depreciation expense for 2010.,No Entry,Required,Change in Estimate Example,LO 4 Explain how to report irregular items.,Equipment,$510,000,Fixed Assets:,Accumulated depreciation,350,000,Net book value (NBV),$160,000,Balance Sheet,(Dec. 31, 2009),Change in Estimate Example,After 7 years,Equipment cost $510,000,Salvage value - 10,000,Depreciable base500,000,Useful life (original) 10 years,Annual depreciation $ 50,000,x 7 years =,$350,000,First, establish NBV at date of change in estimate.,LO 4 Explain how to report irregular items.,Change in Estimate Example,After 7 years,Net book value,$160,000,Salvage value (new) 5,000,Depreciable base155,000,Useful life remaining 8 years,Annual depreciation,$ 19,375,Depreciation Expense calculation for 2010.,Depreciation expense 19,375,Accumulated depreciation 19,375,Journal entry for 2010,LO 4 Explain how to report irregular items.,Corrections of Errors,Result from:,mathematical mistakes,mistakes in application of accounting principles,oversight or misuse of facts,Corrections treated as,prior period adjustments,Adjustment to the beginning balance of retained earnings,Reporting Irregular Items,LO 4 Explain how to report irregular items.,Corrections of Errors:,To illustrate, in 2011, Hillsboro Co. determined that it incorrectly overstated its accounts,receivable and sales revenue by $100,000 in 2010. In 2011, Hillboro makes the following entry to correct for this error (ignore income taxes).,Reporting Irregular Items,LO 4 Explain how to report irregular items.,Retained earnings100,000,Accounts receivable100,000,Relates the income tax expense to the specific items that give rise to the amount of the tax expense.,Income tax is allocated to the following items:,(1),Income from continuing operations before tax,(2),Discontinued operations,(3),Extraordinary items,(4),Changes in accounting principle,(5),Correction of errors,Special Reporting Issues,LO 5 Explain intraperiod tax allocation.,Intraperiod Tax Allocation,Extraordinary Gain:,Schindler Co. has income before income tax and extraordinary item of $250,000. It has an extraordinary gain of $100,000 from a condemnation settlement received on one its properties. Assuming a 30 percent income tax rate.,Special Reporting Issues,LO 5 Explain intraperiod tax allocation.,Intraperiod Tax Allocation,Illustration 4-13,Extraordinary Loss:,Schindler Co. has income before income tax and extraordinary item of $250,000. It has an extraordinary loss from a major casualty of $100,000. Assuming a 30 percent income tax rate.,Special Reporting Issues,LO 5 Explain intraperiod tax allocation.,Intraperiod Tax Allocation,Illustration 4-14,Calculation of Total Tax,Example of Intraperiod Tax Allocation,$24,000,(135),(61),(231),$23,573,LO 5 Explain intraperiod tax allocation.,Note: losses reduce the total tax,An important business indicator.,Measures the dollars earned by each share of common stock.,Must be disclosed on the the income statement.,Special Reporting Issues,LO 6,Identify where to report earnings per share information.,Net income - Preferred dividends,Weighted average number of shares outstanding,Earnings Per Share,Earnings Per Share (BE4-8):,In 2010, Hollis Corporation reported net income of $1,000,000. It declared and paid preferred stock dividends of $250,000. During 2010, Hollis had a weighted average of 190,000 common shares outstanding. Compute Holliss 2010 earnings per share.,Special Reporting Issues,- $250,000,$1,000,000,190,000,=,$3.95,per share,LO 6,Identify where to report earnings per share information.,Net income - Preferred dividends,Weighted average number of shares outstanding,Special Reporting Issues,LO 6,EPS,Divide by weighted-average shares outstanding,LO 7,Prepare a retained earnings statement.,Increase,Net income,Change in accounting principle,Error corrections,Decrease,Net loss,Dividends,Change in accounting principles,Error corrections,Retained Earnings Statement,Special Reporting Issues,Before issuing the report for the year ended December 31, 2011, you discover a $50,000 error (net of tax) that caused 2010 inventory to be overstated (overstated inventory caused COGS to be lower and thus net income to be higher in 2010). Would this discovery have any impact on the reporting of the Statement of Retained Earnings for 2011?,Special Reporting Issues,LO 7,Prepare a retained earnings statement.,Special Reporting Issues,LO 7,Prepare a retained earnings statement.,Solution on notes page,Restricted Retained Earnings,Disclosed,In notes to the financial statements,As Appropriated Retained Earnings,LO 7,Prepare a retained earnings statement.,Special Reporting Issues,Comprehensive Income,All changes in equity during a period except those resulting from investments by owners and,distributions to owners.,Includes,:,all revenues and gains, expenses and losses reported in net income, and,all gains and losses that bypass net income but affect stockholders equity.,LO 7,Prepare a retained earnings statement.,Special Reporting Issues,Special Reporting Issues,Other Comprehensive Income,Unrealized gains and losses on available-for-sale securities.,Translation gains and losses on foreign currency.,Plus others,+,Reported in Stockholders Equity,Comprehensive Income,LO 8,Explain how to report other comprehensive income.,Review,Gains and losses that bypass net income but affect stockholders equity are referred to as,a. comprehensive income.,b. other comprehensive income.,c. prior period income.,d. unusual gains and losses.,Special Reporting Issues,LO 8,Explain how to report other comprehensive income.,Three approaches to reporting Comprehensive Income (SFAS No. 130, June 1997):,A second separate income statement;,A combined income statement of comprehensive income; or,As part of the statement of stockholders equity,Special Reporting Issues,LO 8,Explain how to report other comprehensive income.,Special Reporting Issues,LO 8,Explain how to report other comprehensive income.,Illustration 4-19,Comprehensive Income,Second income statement,Special Reporting Issues,LO 8,Explain how to report other comprehensive income.,Comprehensive Income,Combined income statement,Special Reporting Issues,LO 8,Explain how to report other comprehensive income.,Comprehensive Income,-,Statement of Stockholders Equity,Illustration 4-20,Special Reporting Issues,LO 8,Explain how to report other comprehensive income.,Comprehensive Income,- Balance Sheet Presentation,Illustration 4-21,Regardless of the display format used, the,accumulated other comprehensive income,of $90,000 is reported in the stockholders equity section of the balance sheet.,Review,The FASB decided that the components of other comprehensive income must be displayed,a. in a second separate income statement.,b. in a combined income statement of comprehensive income.,c. as a part of the statement of stockholders equity.,d. Any of these options is permissible.,Special Reporting Issues,LO 8,Explain how to report other comprehensive income.,Under iGAAP, companies must classify expenses by either nature or function. If a company uses the functional expense method on the income statement, disclosure by nature is required in the notes to the financial statements.,Presentation of the income statement under U.S. GAAP follows either a single-step or multiple-step format. iGAAP does not mention a single-step or multiple-step approach. In addition, under U.S. GAAP, companies must report an item as extraordinary if it is unusual in nature and infrequent in occurrence. Extraordinary items are prohibited under iGAAP.,Under iGAAP, companies are required to prepare as a primary financial statement either a statement o